Goldman Sachs put out a 68 page report this morning on the growing tablet market.The long and short of it: Apple is going to dominate for the next two years.
It could own as much as 71% of the market in 2012 if non-Apple tablets continue to flop.
Goldman also says the expansion of iPads, and tablets, is going to cause a serious disruption in the Microsoft-Intel monopoly. Expect tablets to significantly eat away at notebook sales in the coming years.
As Microsoft and Intel falter, ARM holdings, Google, Motorola, HTC, and of course, Apple, will rise.
From Goldman: 'We believe tablets are one of the most disruptive forces in nearly three decades of personal computing. We view the current PC industry profit pool as being largely divided into a pool for Wintel OEMs, a pool for platform owners (Microsoft and Intel), a manufacturing pool, and a pool for peripheral and component suppliers. Significantly, most tablets are not utilising Intel microprocessors or a Microsoft operating system, and this allows new companies such as Apple and Google to encroach on the legacy, once-entrenched platform profit pools.'
Goldman: 'Tablets, in our view, have proved highly cannibalistic for the traditional PC industry. Since the iPad's initial introduction in 2010, annual PC shipments have deteriorated significantly, and PC unit growth has been sub-seasonal. We believe that tablets will remain highly cannibalistic to PCs and estimate that tablets will be 35% cannibalistic in 2011 and 33% cannibalistic in 2012. This should result in a theoretical loss of 21.0 million notebooks in 2011 and 26.5 million in 2012.'
This is one we're not sure we agree with Goldman on. It says, '4G LTE (Long-Term Evolution) will be a meaningful driver for tablets over the next 3-4 years given the significant improvement in speeds, which in our view will allow consumers to more closely replicate the wired experience in a mobile environment and enable applications such as better browsing, video calling, and streaming internet video, which are better utilized for larger screen devices, notably tablets. This gives non-iPad vendors such as MMI, Samsung, and to a lesser degree RIM an early lead given Apple is not likely to release an LTE-enabled iPad until 2012.'
We think WiFi tablets will suffice for most people. Paying up for the 4G, and the monthly bill doesn't seem to be worth it in our experience. Especially with smartphones becoming WiFI hotspots.
Goldman: 'We are cautious on the sell-through of non-Apple (primarily Android) tablets. Our scenario analysis shows that even assuming 50% upside to the non-Apple tablet market in 2011, Apple would still hold a majority market share of 54% (versus our base case estimate of 64%). Apple could hold as much as 74% market share in 2011, if non-Apple units perform according to our downside scenario.'
Goldman: 'We estimate the bill of materials (BOM) for the iPad 2 is $60-$70 less than competitor tablets with similar performance specs, mainly due to Apple's sourcing agreements for displays, NAND flash, and other components. Apple's BOM advantage forces handset and PC OEMs to choose between preserving margins and competing for unit volumes on price--while Apple is succeeding with both.'
Goldman: 'Mutually reinforcing trends of tablet adoption and IT consumerization will accelerate the disruption of the status quo in the enterprise and further shift the centre of gravity toward consumer and mobile technologies. We expect this to benefit the leading consumer electronics franchises of this decade, at the expense of the leading enterprise PC and smartphone vendors.'
Goldman: 'We believe that the long-term structure of the tablet industry will be determined by competition between the major software platforms such as Apple's iOS and Google's Android. Although Apple already controls and standardizes its hardware, we believe that over time the more open platform vendors may have to impose standard hardware and user interface specifications on handset and tablet OEMs to ensure that software developers have a uniform installed base. This move to standardization would narrow the ability for hardware manufacturers to differentiate their technology over time, and could result in hardware commoditization like that found in the traditional PC market.'
Goldman: 'We believe ARM-based processors will dominate the tablet market, as ARM's significantly lower power consumption profile gives it a significant advantage over x86-based processors in the mobile device market. In addition to the direct benefit for ARM Holdings, we see Nvidia, Qualcomm, and Texas Instruments as best positioned to benefit with their ARM-based products, and highlight the risk to x86 providers Intel and AMD given the cannibalization of notebooks by tablets. Technology IP suppliers like Imagination may also benefit as their Graphics IP is used alongside ARM-based processors.'
Goldman: 'The high growth of tablets and resulting cannibalization of PCs should pressure notebook OEMs and ODMs, including Acer (CL-Sell), which has a higher-than average exposure to netbooks. Component manufacturers with product for the smartphone and tablet markets should be better off, and in our coverage we favour Nitto Denko (CL-Buy) despite its focus on Android devices. We're also positive on HTC (CL-Buy), as we expect it to establish an early lead in LTE-enabled tablets.'
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