Playing Tablet Forecast Poker

Steve Jobs’ comments about tablets on Apple’s third-quarter earnings call have once again opened up the debate on the future direction of this nascent category.

Mr Jobs’ sceptical remarks about the seven-inch format for tablets instantly put paid to any rumours that Apple will unveil a smaller variant of the iPad next year. At the same time he dismissed the competitive threat from the stream of low-cost Android tablets that we expect to emerge from Taiwan and China in the coming months.

His comments have come at a time when we are seeing many analyst houses rapidly inflating their forecasts as they compete to have the biggest estimates of the size of this market in 2011. At present, the highest stake I’ve seen on the analyst poker table is 55 million units, from Gartner, but I predict it’s only a matter of time before an even bigger number emerges as others jump on tablet bandwagon.

To date we’ve been conservative with our forecast. For 2010 we worked on the assumption that at least 90 percent of tablet sales would be down to Apple. Like other commentators, we underestimated the success of the iPad. Shortly after the launch of the iPad we forecast total tablet sales in 2010 of 9.5 million units. Given that Apple has shipped 7.5 million iPads so far and has expanded distribution for the lucrative holiday season, we believe it’s on track to shift as many 14 million iPads for the full year. On this basis we have increased our worldwide forecast for tablets in 2010 to 15.4 million units.

This means the real battle will take place among the 1.4 million tablets that aren’t iPads. Despite the flood of cheap tablets expected to pour into the market from Taiwan and China, we believe the only credible competition in 2010 will come from Samsung’s Galaxy Tab. However it’s hard to see it making significant inroads into Apple’s dominant position at an unsubsidised retail price of £530 ($875), given you can buy a 16GB 3G iPad for the same money. I also expect that most mobile network operators will be pretty nervous about subsidising tablets given the challenges they have had selling connected netbooks and notebooks.

The Samsung Tab will also be a sure test of Apple’s belief that seven-inch devices reside in the “no man’s land” between high-end smartphones and Apple’s 9.7-inch iPad. At CCS Insight we continue to believe there is validity in a smaller format, but we’re concerned that it’s a potentially narrow gap between a small tablet and a high-end smartphone with a four-inch screen. We think manufacturers will continue to experiment with seven- to 10-inch tablets as they try to find the “sweet spot”.

However, irrespective of screen size I’m sceptical about how many consumers will want to part with such a sizeable slug of disposable income or commit to yet another expensive monthly air-time subscription for what is essentially the latest shiny gadget. Some relief may come if more operators start to offer multi-SIM contracts, but the extra cost will still be high.

We continue to model our forecast for tablets on the assumption that Apple will secure between 70 percent and 80 percent of the addressable market in 2011. Apple’s seemingly magnetic brand, first-to-market advantage and attractive suite of content and applications on the iPad should allow it to double its sales volume next year. This means it could ship around 30 million iPads, signalling a total tablet market of between 38 million and 43 million units. That would leave little room for the multitude of me-too tablets we expect to be announced in the first quarter of 2011. Some manufacturers may find following the pack into this new device segment (as they did with netbooks) will again prove a costly mistake.