Beyond the strong sales of the iPad 2, there is an increasingly disturbing gulf between high hopes and the reality about the tablet space. On the hopes side, we have an enthusiastic outlook from Qualcomm, and the promise of an early release of models running all kinds of new delights — Ice Cream, the next Android release; Windows 8; Intel’s Oak Trail processor; HP’s rethought webOS; and RIM’s QNX. All this, though, when sales of tablets running the existing options — Android Froyo or Honeycomb, Windows 7, and Snapdragon — are repeatedly disappointing. Over-optimistic expectations and disappointing performance in tablets were the key theme of Samsung’s first-quarter results and could be a template for the whole sector. It was almost a relief to hear a senior Microsoft executive dismiss the hype around the new form factor as a “flash in the pan,” not because Microsoft doesn’t have its own agenda here, but because it sounded like a dose of reality.
The Tablet Chill
This is not to say that tablets will not become a significant market. The iPad has shown one type of demand for such a product, and there will be many others in enterprise and industrial segments, not to mention new routes to market, such as the pay-TV providers. Three US cablecos have recently announced iPad services, and some will start to sell the gadgets themselves.
But as companies like Acer and Sony, to name just this week’s entrants, pin their hopes on the tablet market for growth, they should be cautious in their pronouncements and work towards a medium-term opportunity rather than an overnight sensation.
Even though only a few Android tablets have hit the shelves, some are already rumored to be underperforming, including the first major Honeycomb model, the Motorola Xoom. Investment bank UBS has lowered its target price on Nvidia, whose share price patterns have mirrored those of the tablet sector, which the firm addresses with its flagship processor, Tegra 2. The company enjoyed an impressive 71% rise in value between November and February but has seen a fallback of over 16% in the past month.
Samsung’s Performance
To be fair to Samsung, it had done little to whip up the tide of enthusiasm for its first tablet, Galaxy Tab. It attracted attention largely because it was the first big-brand offering that wasn’t from Apple, and a first chance to see how the iPad would fare against a well supported rival. Samsung was clear that the device was a stopgap — limited to 7 inches because Google had not yet released Honeycomb, the version of Android that supports larger displays, lacking key Samsung hallmarks like an AMOLED screen. Like Samsung’s first underwhelming Galaxy Android phone, this was a product that could be rushed out quickly to establish a foothold before the tablet deluge began. But users would have to wait for subsequent models to see what Samsung could really do. This will be seen when its new, larger Galaxy Tabs ship in volume.
But the markets did not want to hear such a downbeat story, and in the light of disappointing quarterly results, Samsung insiders profess themselves frustrated at the misguided expectations for Galaxy Tab. Intensifying competition in mobile devices hit Samsung’s first quarter, as the firm posted its second consecutive quarterly fall in operating profit. The firm’s shares slumped on fears that full-year profits may be hit by the price war in phones and tablets, despite Samsung’s progress in market share in those sectors.
As well as price pressure even on high-end mobile devices, operators are reducing the price of the Galaxy Tab amid competition from the new iPad 2.
“People have only limited budgets to spend on technology products,” Lee Jin Woo, a fund manager at KTB Asset Management in Korea, told Bloomberg. “There are all these smartphones and tablets in the market, and their incomes are not rising.”
Most analysts agree tablet sales have not lived up to over-optimistic expectations, and that the limitations of the first Tab were often not taken into account in rosy forecasts. NH Investment & Securities cut its earlier estimates for Samsung’s 2011 tablet sales.
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