Are Tablets Doomed to Suffer Netbooks' Fate?

Is the tablet PC market promising much more than it can deliver? I began wondering about this many weeks ago, but the question has become even more pertinent now as many manufacturers struggle to gain traction, despite the analyst projections of lofty sales. Even in developing economies, researchers say tablet sales will rise at a strong rate for the foreseeable future.

For instance, the research firm IDC said in a recent report that second-quarter media tablet shipments in Europe, Middle East, and Africa (EMEA) rose 394 percent from a year earlier and 82 percent from the first quarter, beating forecasts.

"IDC expects the EMEA media tablet market to continue to enjoy robust expansion, with shipments forecast to reach close to 22 million units, representing 9.1 billion euros in value in 2011," Eszter Morvay, research manager for IDC's personal computing group, said in a statement. "The second half of the year will see a further expansion of product availability, which will lead to accelerating competition and more aggressive price points. The Christmas season in particular is expected to be very buoyant with vendors positioning their products as the perfect Christmas gift."

Those numbers paint a rather rosy picture that diverges sharply from the experience of most manufacturers. In recent weeks, Hewlett-Packard Co. (NYSE: HPQ) has announced it would halt production of its TouchPad tablet, and reports indicate the BlackBerry PlayBook from BlackBerry (Nasdaq: RIMM; Toronto: RIM) is struggling to gain market acceptance. In fact, retailers have slashed the price of the PlayBook by as much as $200, according to reports.

All indications are that only Apple Inc. (Nasdaq: AAPL) is making money in the tablet market today, and recent news developments indicate the company may be running into some headwinds. On Monday, a JPMorganChase analyst in Taiwan said supply chain partners have indicated Apple slashed orders for iPad components about 25 percent recently. The news hurt Apple's stock price, pushing it down as much as 3 percent.

Does this mean iPad shipments will be softer in the fourth quarter? It's possible sales may not be as robust as the year comes to an end. But analysts themselves are not speaking with one voice. A JPMorgan Chase analyst in the United States took issues with the report filed by his Asia-based colleague and argued that "Apple is fine."

Sure, Apple is fine. It is the leader in tablets, with a market share of more than 70 percent, so it will continue to post stronger sales than competitors, even if the market swoons. However, if the first JPMorgan Chase report is true -- and it may well be, since the analyst credited his conclusion to shipments from suppliers -- then the tablet market may become more challenging than anyone assumes now. How? Remember netbooks? The small notebooks were once the rage of the electronics market, but shipments have since fallen off.

Is it possible that tablets are also the fad of the moment? I don't think this is necessarily the case, because of the wider range of applications for which tablets are being groomed and also because of Apple's presence in the sector. However, with prices dropping precipitously for other manufacturers, and with the electronics industry support base cranking up component sales, distribution, manufacturing, and logistics services for the tablet sector, executives need to take a short break to consider lessons learned from the dwindling netbook market.

Motorola Mobility, RIM, HP, and many other OEMs have jumped into the tablet market, but their sales have been dismal. We've all assumed this is because of Apple's better product and more devoted following, but what if tablets aren't all they're cracked up to be? What if demand is hot now but will eventually cool down to a more reasonable level? And what if they are just another niche product in an industry chock full of niche gadgets?