As tablet sales decline, Apple shows it is not afraid to eat itself

2 Feb 2015

While Apple dominates global shipments of tablet computers, it is not afraid to allow its new and larger-screened iPhone line-up eat into its iPad channel. It’s cannabilisation Jim, but not as we know it.

The latest worldwide tablet shipment figures from IDC found that overall shipments for tablets and two-in-one devices reached 76.1m in Q4, down 3.2pc.

Overall for the year tablets were up 4.4pc to 229.6m, but the fact that numbers were faltering in the normally frenetic holiday season is a cause for concern

“The tablet market is still very top heavy in the sense that it relies mostly on Apple and Samsung to carry the market forward each year,” said Jitresh Ubrani, Senior Research Analyst, Worldwide Quarterly Tablet Tracker.

“Although Apple expanded its iPad lineup by keeping around older models and offering a lower entry price point of US$249, it still wasn’t enough to spur iPad sales given the excitement around the launch of the new iPhones. Meanwhile,

Apple’s lead over other vendors has yet to be truly challenged as it shipped 21.4 million tablets, accounting for over a quarter of the market with 28.1pc volume share.

“Despite an apparent slow-down of the market, we maintain our forecast about tablet growth in 2015,” said Jean Philippe Bouchard, Research Director, Tablets at IDC.

“Microsoft’s new OS, a general shift towards larger screen form factor and productivity focused solutions, and technology innovations such as gesture interface that could be introduced in tablets will help the market maintain positive growth in 2015.”

A tech giant not afraid to kill its young

IDC surmised that Apple’s efforts to maintain iPad momentum have fallen flat so far as the latest generation of the iPad Air and mini offer very minimalistic upgrades over their previous versions.

Cannibalisation at the bottom from the iPhone and at the top from the Mac appear to be a serious issue for the iPad, it reasoned.

But we can also reason that cannibalisation isn’t necessarily a bad thing in the Apple mindset.

It is only 14 years since the iPod changed music history but now the iPod barely rates a mention when Apple announces its massive quarterly results.

Apple isn’t sentimental when it comes to growth, and if one product’s success erodes another’s, then as long as the numbers add up and the boundaries of technology are being advanced and the competition is bleeding, then it is all good.

Apple’s turnaround from near-death to the biggest company in tech in less than two decades has been phenomenal.

Remember, this is a company that 18 years ago was bailed out by Microsoft in 1996 as bankruptcy loomed. Now Apple’s Q4 profits are three times that of Microsoft’s Q4.

Last week Apple posted the highest profit in business history with profits of US$18bn arising from revenues of US$75bn during which it sold 74.5m iPhones and 21.4m iPad devices.

If you look closely enough it appears the iPad is beginning to suffer some of the fate of the iPod. While Apple still sells iPods to an appreciative audience, it wasn’t afraid to cannibalise this once lucrative cash cow by putting iPod functionality in iPhone and subsequently iPad devices.

Now the iPad – namely the iPad mini – is being eroded by the popularity of the new iPhone 6 and iPhone 6 Plus smartphones, the latter of which has a 5.5-inch display, and uncomfortably close to the iPad mini’s 7.8-inch screen.

This is not the disaster that people think it is. Apple sold more iPhone devices in Q4 than it did in the entire year of 2011.

To understand the psyche of Apple it is this: build stuff that people actually want. It doesn’t actually matter if one product set loses out as long as enough people are buying enough satisfactory product.

And the key here is satisfaction. Apple’s doctrine is predicated around building the right stuff when it is good and ready, when it knows satisfaction levels will be high.

Apple also tends to re-focus on product lines and push the boundaries even further. And each product set relies on the other to drag itself forward. Look at how the latest OS X Yosemite has borrowed heavily from iOS and vice versa. In October Apple revealed its new iMac Retina 5k display, proving there’s plenty of life in the desktop yet. In Q4 Apple sold 5.5m Mac computers, straddling ultra portable MacBook Air devices to sturdy MacBook Pro and iMac desktop products.

It is the next 12 months that are going to be interesting. Samsung has had smart watches out in the market for close on two years and Sony for much longer than that. Apple instead took its time and built the product it wanted to build, with the finish it wanted and with the apps ecosystem in place for a launch in April.

The same is true for the latest generation of iPhones. Samsung has had its Note phablet on the market for about three years now and rivals like HTC and Sony were producing large screen devices of around 4.7- and 5-inches for the past two years.

Only in September did Apple reveal its 4.7-inch iPhone 6 and its 5.5-inch iPhone 6 Plus smartphones to popular acclaim.

If one larger screen device erodes demand for another even larger screen device in the short or long term it doesn’t matter as long as consumers are staying loyal and are prepped to buy the next big thing when it comes along. And when Apple is good and ready.

It’s Apple’s formula, and US$18bn in profit shows the numbers are adding up.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years