Why small-fry tablets might goose Windows 8 hybrid sales
It doesn’t take a deep reading of supply-chain tea leaves to see that smaller tablets are taking over. Offering lower prices and better portability, tablets such as Apple’s iPad mini, Amazon’s Kindle Fire, and Google’s Nexus 7 are loaded with consumer appeal.
Nonetheless, analytics firm NPD DisplaySearch has done the dirty work and confirmed our suspicions. In January, 9.7-inch touch-panel shipments dropped drastically, DisplaySearch’s latest report claims, while the biggest gains came from 7-inch to 7.9-inch displays.
It’s an interesting trend given that the full-size iPad was supposed to be a laptop killer. Apple’s granddaddy tablet has certainly slain the netbook market, but if smaller tablets continue their healthy sales trajectory, it gets harder to imagine all those little screens standing in for a proper laptop.
So we must ask: Will people who buy the iPad mini and its small-fry brethren continue to purchase larger tablets as well? Or does the popularity of smaller tablets actually leave more room for the laptop—or perhaps the laptop-tablet hybrid—to thrive?
The rise of the handheld tablet
Let’s back up for a moment and take a closer look at DisplaySearch’s latest report, which the firm released Thursday. The researchers say that shipments of 9.7-inch touch panels—the kind that Apple’s full-size iPad uses—dropped to 1.3 million units in January, down from 7.4 million units the month before. Although shipments of displays measuring 7 inches to 8 inches increased only modestly over the same period, from 12 million units to 14 million units, DisplaySearch still concludes that “the iPad mini has been more popular than the iPad.”
Keep in mind, though, that DisplaySearch’s estimates are based on supply-chain sources, and aren’t official figures from Apple. As Matthew Panzarino pointed out recently, even Apple CEO Tim Cook warned against interpreting supply-chain estimates as gospel. “Our supply chain is very complex, and we have multiple sources for our components. Yields can vary … supplier performance can vary,” Cook said during an earnings call in January.
All that said, it seems like only a matter of time before small tablets do in fact take over. IHS, another market-analysis firm, predicted last October that small hardware will account for 33 percent of all tablets sold in 2013, up from 28 percent the year before. But IHS also called that a “conservative” estimate, noting that the percentage could grow even higher if Apple’s suppliers could meet demand.
“There's no question that smaller sizes in tablets are going to become the main size category for tablets starting in 2013,” Richard Shim, senior analyst for DisplaySearch’s PC group, said in an interview. Like many other industry watchers, Shim believes that tablets will outsell laptops in the long run, with smaller, cheaper devices leading the charge.
But the laptop hangs on
We’ve been hearing about the iPad’s potential to cannibalize the laptop market ever since Apple debuted the tablet in 2010. But Shim says that notion was always a bit misunderstood. Although it’s true that consumers in developing markets might be primed to purchase more tablets instead of full-size notebooks, consumers in mature markets will more likely delay their next laptop purchases—but not give up on laptops entirely.
“The tablet is very complementary because PC buyers, instead of buying a notebook, may delay that purchase until later, and get a tablet instead,” Shim says. “But at the end of the day, they're going to get both devices.”
Not everyone sees it quite that way. In January, Gartner released a report stating that PC shipments declined during the holiday season, despite the launch of Windows 8. Mikako Kitagawa, a principal analyst for Gartner, said at the time that although families may keep a single desktop or laptop around for creative tasks, most individuals would not own both.
“There will be some individuals who retain both, but we believe they will be the exception and not the norm,” Kitagawa wrote. “Therefore, we hypothesize that buyers will not replace secondary PCs in the household, instead allowing them to age out and shifting consumption to a tablet.”
The rise of inexpensive tablets, she said, makes the transition even easier. In other words, small and cheap tablets may be accelerating the decline of laptops, not helping to bring them back.
Hybrids have a chance
If there’s any hope for a laptop resurgence, it rests on the shoulders of hybrids and convertible devices, particularly those with screens that are larger than the 9.7-inch display in Apple’s full-size iPad.
PC makers now see 13-inch devices as a big opportunity, says Rhoda Alexander, IHS’s director of tablet and monitor research. It’s easier to sell 13-inch devices at higher prices, and they also offer clear, easily distinguished benefits over the new class of tiny tablets, which are so obviously geared toward media consumption rather than productivity.
Still, Alexander isn’t sure that consumers will latch on to Windows 8. The value of 13-inch hybrids, she says, is more for businesses that might want a single device that’s portable enough for tablet use in the field yet powerful enough for office work. Consumers, Alexander says, aren’t married to Windows anymore, and now have a wider range of choices across the whole spectrum of devices.
“From feature phones to smartphones to phablets to media tablets to PC tablets to traditional PCs, there's just tremendous competition in this whole sector,” Alexander says.
Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, is more optimistic about the future of Windows hybrids. He believes that the market for premium 10-inch tablets will shrink as smaller tablets take over, while users will opt for hybrids to serve their content-creation needs.
“I think that people’s redefinition of what the ultimate tablet is—7 inches—actually helps Ultrabooks, notebooks, and convertibles get more popular,” Moorhead says.
The key, Moorhead adds, will be faster processors and more refined versions of Windows, combined with lower prices. At that point, it won’t make much sense to buy a full-size iPad instead of something like Microsoft’s Surface. “I can see, at the end of 2013 or the beginning of 2014, where this space gets sexy again, because it's just so demonstrably different from what [consumers] can do today,” Moorhead says.
That sounds a lot like Microsoft’s own message: That we're still in the early days of Windows 8. The best hope for the PC market is that as people start gobbling up smaller tablets, they’ll also go looking for larger devices that offer much more than just the same iOS and Android apps on a slightly larger tablet display.
Still, even then, Windows machines will face the usual competition from Macs, which are increasingly converging software-wise with iOS devices, as well as new competition from Chromebooks, which are looking more interesting by the day. Though all signs point to a smaller-tablet takeover led by the iPad mini, the remains of the computing market are very much up for grabs.
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