As Android Tablets Surge, Panic for Apple? - Investorplace.com

One of the most impressive elements of Apple’s (NASDAQ:AAPL) launch of the iPad â€" its category-defining tablet â€" was the way it immediately seized control of the market and continued to dominate it, even as competitors raced to release their own versions.

Other companies had been dabbling in tablet PCs for years (heck, even Apple had the tablet/”personal digital assistant” Newton back in the 1990s), but no one had cracked the consumer market for the tablets until the iPad.

One of the big surprises in Apple’s 2010 reveal was the price tag. Although long associated with premium products, the company had managed to put together a compelling, full-size tablet starting at $499. The price turned out to be a huge stumbling block for competitors that seemed unable to undercut or even match it.

The iPad had the advantage of Jonathan Ives and his design prowess, Steve Jobs’ legendary eye for detail, integration with Apple’s iOS mobile operating system, a flourishing App Store, Tim Cook’s supply-chain management (which locked up components and reduced Apple’s costs) and the growing success of the iPhone.

Consumers were short on cash and not in the mood to fork over $1,000 for a new laptop, so a portable device at half that price was very appealing. In short, every piece was in place for the iPad to be a huge success.

Consumers ate up the iPad, and it began to make its way into business and enterprise use as well. Other companies quickly ramped up with their own tablets, but the tech landscape was quickly littered with failures: Dell (NASDAQ:DELL) discontinued its Streak line, Hewlett-Packard (NYSE:HPQ) killed its TouchPad. Samsung released a 7-inch Galaxy Tab that cost $100 more than the iPad, and the early sales success it reported was deflated when it turned out Samsung had been saying “sold” when it really meant “shipped.” Research In Motion (NASDAQ:RIMM) lost a bundle on its poorly received PlayBook tablets.

No one seemed to be in a position to dethrone the iPad, even as the tablet market took off. The numbers looked like this:

• 2009: Roughly 2 million tablet computers sold worldwide, Apple has 0% share.
• 2010: Roughly 20 million tablets sold, Apple’s share for the year is 83%.
• 2011: Apple sells 47.3 million iPads of the 66 million tablets sold globally. Tablets running Google’s (NASDAQ:GOOG) Android operating system were the primary competitor.

As the iPad continued its dominance, it began to command a larger share of Apple’s revenue. In Q3 2012, iPad revenue was $9.2 billion, up 53% from the previous year.

However, 2012 may also mark the end of the iPad’s run as the world’s dominant tablet. According to Forbes, just under half of all tablet owners are now holding an Android-based device. Apple’s slim lead (pegged at 52%) seems unlikely to last through the year under an onslaught of popular and inexpensive new Android tablets â€" including Amazon’s (NASDAQ:AMZN) Kindle Fire and the Google Nexus. In fact, iPad may well have already been eclipsed.

Should Apple (and Apple investors) push the panic button at this rapid reversal of fortune?

I don’t think so. While Apple’s early dominance in the tablet market was certainly gratifying for the company, it’s highly unlikely that anyone would maintain over 80% of the market in a competitive industry where demand has grown from 2 million units per year in 2009 to an expected 140 million+ in 2013.

Apple’s iPad sales are up significantly, but the market has expanded. Now, far more potential buyers may prefer smaller form factors and different operating systems. Or, they may simply be more price-sensitive. Largely unable to crack Apple’s grip on full-size tablet buyers, Android tablet makers have been focusing on smaller, cheaper devices â€" and that’s where they’re making up ground. Nearly half of all the Android tablets in circulation are $200 Kindle Fires.

Apple is preparing to fight back against that trend and is expected to announce an iPad Mini this month. The company has reportedly ordered 10 million units for the holiday season, and if Apple offers a smaller iPad that’s competitive in price, you can expect to see the Android adoption rate slow. Still, the writing is on the wall.

The tablet market has quickly matured, and it’s all but impossible for a single company to utterly dominate. Apple should continue to see strong growth in iPad sales, but 2010 and complete category ownership is over. I would expect Apple to remain the single largest tablet manufacturer for the foreseeable future, but Android is likely to hold the platform lead.

The situation is not unlike the smartphone market, where Android devices now hold a significant worldwide lead over Apple’s iOS and iPhone â€" yet no one seems worried about iPhone sales these days. Apple will remain a leader (but not necessarily the leader) and continue to sell loads of tablets at margins that its competitors can only dream of.

That’s nothing to panic about.

As of this writing, Brad Moon didn’t own any securities mentioned here.