This morning I was talking to Paps who summed up the current evolution of computing in his own way, “I used to bring my laptop everywhere I went because that’s what you’re supposed to do. But after a year with the iPad I found that the only time my MacBook Air ever left my briefcase was when I had to take it out for the security checkpoint at the airport. I feel guilty for abandoning that amazing machine but it can’t compete with the iPad. It’s gotten to the point where I haven’t taken my Air on a business trip in months. It has sat in the corner of my office unused for months. We now live in a Desktop/iPad world. The era of the laptop is over.”
The data seems to be moving in that direction. Industry research firm DisplaySearch reveals today that Apple (AAPL)shipped a total of 13.5 million mobile PC units representing year over year growth of 136 percent, 80 percent of those units belonged to the iPad. Now consider the growth rates of the industry ... notebooks are up only 2 percent year over year and were down 2 percent compared to the first quarter 2011. Tablet PC shipments rose 70 percent in the second quarter of 2011 and rose 400 percent year over year. So what happens if tablets do replace laptops and the iPad commands the same kind of market share in the tablet market that the iPod experienced in the MP3 market? The ramifications of this realization are mind numbing. Market researcher Gartner said the mobile PC market in Western Europe saw a sharp decline of 20.4 percent in the second quarter of 2011 as mini-notebook netbook shipments fell 53 percent.
Apple looks to be the sole beneficiary of this new trend in mobile computing. It won’t be HP (HPQ) after they quickly gave up on a tablet of their own. The Wall Street Journal’s AllThingsD must have been correct in reporting that big box retailer Best Buy (BBY) ordered 270,000 units of HP’s TouchPad and has so far managed to sell only 25,000. Sources claim that Best Buy is so unhappy with the HP TouchPad that it is unwilling to pay for the remaining 245,000 units and wants HP to take them back. The exact same thing that happened to Palm phones is happening to the WebOS TouchPad. HP was too late to the game. HP's product was inferior. And HP needs a new business model to survive. They tried a tablet to make up for weak laptop demand but that didn't work. If HP can't compete with Apple, who can?
Nokia (NOK), HTC (HTC), LG (LG), and Samsung (SSNLF.PK) produce decent hardware but they don’t control the software which creates an inferior user experience. Microsoft’s (MSFT) last effort at hardware was the Zune. Needless to say, they don't have a prayer of competing with Apple. Dell (DELL), Sony (SNE), Samsung and Acer (ASIYF.PK) sing the same sob story ... hardware only. Those companies depend on Microsoft for software and compete with each other in hardware commodity pricing wars. It won’t be Google’s (GOOG) Android either. The fragmented approach by Google has been a disaster that resulted in Google’s desperate acquisition of Motorola (MMI). Android apps aren’t designed to run on any specific machine. Android devices from prior years are likely to be incompatible with current versions of the OS. The Android OS is proving to be a weak direct competitor to the Apple ecosystem. Six months after the introduction of the Verizon (VZ) iPhone, Verizon’s share of the Android market has dropped 10 percentage points down to 41 percent as Verizon Android users switch to the iPhone. The fact that the iPad is ubiquitously available is bad news for Google.
As Apple competitors try to get up to speed in the tablet war they face the brutal reality that Apple already has a full lap lead in a mile long race. There is only one tablet to replace the laptop market and that one tablet is the iPad. The iPad’s market share of the tablet market sits at 75 percent according to ABI research. Which leads us to the most important question ... how many iPad’s will Apple sell this holiday season? With the era of the laptop coming to an end how should we extrapolate Apple’s recent quarter of 9.25 million iPads into the holiday quarter? It's logical to assume that the iPad will mirror the growth that the iPhone experienced in 2010 as it grew from 8.4 million units sold in Q2 to 16.2 million in Q4, 92% growth. We also take into consideration the 183% year over year growth that the iPad experienced in its most recent quarter to come up with a forecast of 21.9 million iPads to be sold in this year's holiday quarter. The end of the era of laptop growth will benefit Apple in a major way.
Disclosure: I am long AAPL.