Crack Opens in Apple's Tablet Armor

Apple Inc. (Nasdaq: AAPL) experienced a sharp drop in tablet marketshare in the third quarter. Its growth trailed the overall industry expansion rate as consumers waited for the debut of the mini iPad and pressure continued from Samsung and other rivals, according to a research report from IDC.

In the third quarter, Apple shipped 14 million tablets, giving it a 50.4 percent overall marketshare, versus 65.5 percent in the second quarter and 59.7 percent in the third quarter of last year. Unit shipments grew 26 percent in the quarter, but the market average was 49.5 percent.

Apple is still by far the leading tablet vendor. Its 50.4 percent share is more than double the 18.4 percent share of Samsung Electronics Co. Ltd. (Korea: SEC), the No. 2 player in the sector. Rounding up the top five are Amazon.com Inc. (Nasdaq: AMZN) (9 percent), Asus (8.6 percent), and Lenovo (1.4 percent). Still, Samsung seems to be gaining rapidly on Apple. The Korean consumer electronics company increased its share 325 percent in the tablet market from a year earlier. It will most likely keep gaining share at the expense of its rivals over the next few quarters.

Ryan Reith, program manager for mobile device trackers at IDC, said in a press release:

Samsung took advantage of an opportunity in the second quarter. The company offers a wide range of tablet offerings across multiple screen sizes and colors, and that clearly resonated with more buyers this quarter. Its growth to 18.4% of worldwide market share during the quarter represents the first time a competitor has attained this level of share since the original launch of the iPad.

Do the latest numbers indicate Apple's grip on the market is slipping? Not necessarily, according to IDC. Its marketshare fell partly because consumers were looking forward to the mini iPad, which the company released in October to combat encroachment from seven-inch devices from Amazon.com, Google, and more recently Microsoft Corp. (Nasdaq: MSFT). Tom Mainelli, research director for tablets at IDC, said in the release that Apple's share will most likely increase this quarter as consumers buy more iPads.

After a very strong second quarter, Apple saw growth slow as both consumer and commercial (including education) shipments declined, and rumors of a forthcoming iPad mini began to heat up. We believe a sizeable percentage of consumers interested in buying an Apple tablet sat out the third quarter in anticipation of an announcement about the new iPad mini.
Now that the new mini, and a fourth-generation full-sized iPad, are both shipping we expect Apple to have a very good quarter. However, we believe the mini's relatively high $329 starting price leaves plenty of room for Android vendors to build upon the success they achieved in the third quarter.

Apple could fight back strongly over the holiday period to regain ground, according to IDC. Its iPads remain must-have products for many consumers in North America and Europe. However, the high price of the mini iPad versus offerings from Amazon and Google could further weaken its hold on the sector. It's inevitable that its share will slip eventually as more companies enter the market, including nontraditional electronic equipment makers.

Personally, I expect the company to retain a respectable marketshare for a while longer, but it is getting harder for Apple to maintain its edge at its current pricing.