IDC Q3 2014 Tablet Shipments: The Chinese Are Coming

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Includes: AAPL, LNVGY, SSNLF
by: WestEnd511

Summary

IDC's Q3 2014 tablet shipment numbers indicate that AAPL continues to lose market share while low-cost OEMs continue to expand market share.

AAPL's decline can be seen as a sign of its diminishing ecosystem despite the higher profit.

Lenovo continues to execute beyond PC. Reiterate bullish view.

Event

IDC released its worldwide tablet shipments that showed total volume growth of +11.5% with shipments reaching 53.8m units. (Link) US tablet shipments were largely in-line with global growth, +11.2% during the quarter. Apple (NASDAQ:AAPL) was the biggest loser in the Q with shipments down -12.8%, which once again highlights the trend of a declining hardware/software ecosystem that we are seeing in its smartphone sales (see: IDC Q3 2014 Smartphone Shipments: The Chinese Are Coming). Lenovo (OTCPK:LNVGY) is the winner of the quarter, with shipments increasing +30.6% and accounting for 5.7% of the global market share. While RCA saw tablet shipments increase +194% during the Q, much of the increase was due to back to school sale, which I view to be unsustainable. In short, Lenovo's strength once again indicates solid execution while AAPL's market share decline makes me further question the sustainability of the iOS ecosystem that is driven largely by hardware sales.

Vendor

3Q14 Unit Shipments

3Q14 Market Share

3Q13 Unit Shipments

3Q13 Market Share

Year-over-Year Growth

1. Apple

12.3

22.8%

14.1

29.2%

-12.8%

2. Samsung

9.9

18.3%

9.3

19.3%

5.6%

3. ASUS

3.5

6.5%

3.6

7.4%

-0.9%

4. Lenovo

3.0

5.7%

2.3

4.8%

30.6%

5. RCA

2.6

4.9%

0.9

1.8%

194.0%

Others

22.5

41.8%

18.1

37.4%

24.4%

Total

53.8

100.0%

48.3

100.0%

11.5%

Source: IDC

Highlights

A contracting ecosystem. Consistent with the trend we see in the iPhone shipments and market share stats, AAPL's tablet shipments and market share continues to decline which further pressures the growth prospect of the iOS ecosystem that largely depends on hardware sales. Similar to the iPhone, the iPad commands premium pricing which prevents AAPL from expanding its market share amid the proliferation of low-cost Android devices. iPad's future growth largely depends on the potential adoption of the device by enterprise users, but I believe that corporations could begin to use Android tablets as an alternative to the iPad as mobile security on Android improves over time and given that Android's low-cost pricing, reliability and utility would be compelling to the corporate. I view this to be a long-term negative to AAPL.

Moving beyond PC. Lenovo's execution in moving away from its core PC business and into mobile devices is impressive to say the least. The company not only ranks top 5 in the global smartphone market in terms of shipments but also pushing ahead in the tablet market, making it a classic textbook example of leveraging core asset to find growth in new areas. Despite accounting for just 15% of its total revenue, Lenovo's mobile devices business is also the fastest growing segment and I expect the acquisition of Motorola to expand Lenovo's presence in North America where Lenovo has yet to penetrate.

Conclusion

Consistent with the read-through from the smartphone shipments numbers, the low-cost Chinese device makers that are moving up the value chain pose the biggest threat to the high-end device makers. Reiterate my bullish view on Lenovo and my bearish view on AAPL.

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