Why Apple Still Dominates Tablets

Aug.10.11 | About: Apple Inc. (AAPL)
AAPL_iPadClick to enlarge

During the recently held Apple (NASDAQ:AAPL) quarterly results, the company announced that it sold 9.25 million iPads up from 4.7 million in the previous quarter. [1] This better than expected sales surprised many Apple fans, and after our revisions, the iPad now accounts for about 12% of our $510 valuation for Apple’s stock. We believe that the iPad will continue to dominate the tablet market in the medium term (next 1-2 years) due to the fact that Google (NASDAQ:GOOG) has a different OS for tablets and smartphones while Microsoft’s (NASDAQ:MSFT) Windows 8 operating systems won’t be available until 2012. Our $510 price estimate for Apple stock is about 30% above the market price.

Google still has different OS for smartphones and tablets

Research firm IDC estimates that consumers will snap up around 54 million tablets in 2011 and so our expectation of 37 million iPads sold for 2011 implies that the iPad should gain around 70% of the market share. [2]

Apple’s advantage in the tablet world is that its iOS works for both the iPhone and iPad, which helps developers in synchronizing development tasks. Google, on the other hand, has a different OS for smartphone and tablets.

Google came out with an advanced version of Android for smartphones known as GingerBread, which isn’t compatible with tablets. It rolled out a separate version for tablets named Honeycomb. The next OS, dubbed Ice Cream Sandwich, will work on both smartphones and tablets but will not be available until Q4 2011 or after by many reports. By that time, Apple will have already extended its lead in the tablet segment.

(Chart created by using Trefis' app)

Microsoft Windows 8 is so next year

Microsoft plans to officially launch the next version of an operating system called Windows 8 next year. [3] Windows 8 is a touch-screen version of the OS and will work on tablets as well. However, similar to Google’s Ice Cream Sandwich, Windows 8 allows the iPad to make further inroads into the tablet market.

By the time Google and Microsoft roll out their new tablet OS’s, Apple may well have launched iPad 3 to further drive sales.

Notes:

  1. Apple fiscal year Q3 2011 results, SEC, 20th July, 2011
  2. IDC tablet market forecast for 2011, July 8th, 2011
  3. Bloomberg report on when Windows 8 could be launched, June 3rd, 2011

Disclosure: No positions