Market Overview

Is the iPhone 4S Cannibalizing the iPad 2?


Apple's toughest competition in 4Q 2011 was Apple, iSuppli claims.

The IHS (NYSE: IHS) research firm has released a report (via Barron's) on the tablet market, revealing that Apple may have actually cannibalized sales of the iPad 2 with the release of the iPhone 4S.

This might explain why the iPhone 4S did not arrive last summer as anticipated: because Apple knew it could have a negative impact on the sale of its second-most prominent device.

“Shipments of the iPad line fell short of IHS estimates in the fourth quarter as many loyal Apple customers devoted their dollars to shiny new alternatives,” Rhoda Alexander, senior manager for tablet and monitor research at HIS, said in a company release. “However, the primary alternative wasn't the Kindle Fire – which debuted to solid sales in the fourth quarter – but Apple's own iPhone 4S smartphone. The rollout of the iPhone 4S in October generated intense competition for Apple purchasers' disposable income, doing more to limit iPad shipment growth than competition from the Kindle Fire and other media tablets.”

The Kindle Fire did very well, however. According to iSuppli, Amazon (NASDAQ: AMZN) shipped nearly four million units in the fourth quarter, “allowing the company to garner a double-digit share of the market, at 14.3 percent.” This, iSuppli said, “drove Amazon to become the world's second-largest tablet shipper in the fourth quarter, surpassing Samsung Electronics.”

Adds Alexander, “Kindle Fire shipments in the fourth quarter came right in line with the IHS early December forecast of 3.9 million units, representing a respectable start for the Fire.”

Alexander believes that the Kindle Fire's long-term viability “will hinge on the success of Amazon's business gamble, which depends on tablet sales driving substantial new online merchandise sales at in order to attain profitability.”

All in all, Apple shipped just over 40 million iPads and iPad 2s in 2011 – a 168% increase from the 15.1 million iPads that Apple shipped in 2010. As a result, the Mac maker wound up with a 62% share of the tablet market. That's huge, but due to increased competition, the company's market share actually decreased from the previous year. Back in 2010, Apple owned 87% of the market.

While Amazon appears to be Apple's biggest threat, Samsung managed to maintain its number-two position with roughly 6.1 million tablets shipped in 2011.

According to Alexander, the “surge in non-iPad shipments” during Q4 2011 “was achieved at considerable financial cost, with sharp price reductions across most of the competing Android tablets and actual product giveaways from a number of vendors as part of promotional efforts for other electronic products.”

Interestingly, iSuppli believes that manufacturers and branded vendors are now looking to Windows 8 tablets as a more profitable alternative. The researcher said that we should watch for a “surge of Windows 8 and ARM microprocessor-based tablets in late 2012 and early 2013.”

Finally, iSuppli said that it believes the iPad 3 will sell strong and that demand for the new tablet will “outstrip supply for several months.”

Follow me @LouisBedigian

Posted-In: Amazon Apple iPad iPad 2 iPhone 4SNews Success Stories Tech Best of Benzinga


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