Why Samsung predicts its profits will fall in the 2nd quarter (Part 7 of 10)
Tablet market growth could slow considerably
In the previous part of this series, we discussed why Samsung’s (SSNLF) tablet sales slowed in Q2 2014. However, it looks like the broader tablet market is undergoing a slowdown.
According to a recent report from NPD DisplaySearch and as the chart below shows, although the tablet market grew from 152 million units in 2012 to 250 million units in 2013 at a growth rate of 64%, this growth rate could slow down considerably in 2014. NPD now expects the tablet market to grow at a modest 12% to 280 million this year. The report also mentions that this growth rate could slow down to single digits by 2017. Let’s try to understand why tablet market growth could slow considerably.
Major players are struggling in the tablet market
In the previous part of this series, we discussed how Samsung blamed the success of its phablets on the slowdown of its tablet sales.
Apple (AAPL), which is the largest player in the tablet market, is also not spared from this slowdown. In the quarter that ended in March, Apple beat all analysts’ estimates, with robust earnings. Its iPhone and Mac sales were also better than expected. However, iPad sales disappointed. Apple could only sell 16.4 million iPad units, which was a year-over-year decline of 16%.
Lenovo (LNVGY) did well in the tablet market last quarter. It managed to more than triple its market share, according to IDC.
Tablets are seeing higher replacement cycles
Consumers usually replace smartphones frequently due to contracts with telecom providers, especially in developed markets like the U.S. You can buy an iPhone from Verizon (VZ) or AT&T (T) at a highly subsidized price with of a two-year contract. Once the contract expires, you need to replace your smartphone with the latest model and again enter into a contract. This helps mobile vendors increase their sales as well.
But the tablet market works differently. There are no contracts with tablets. So consumers are free to use their device as long as possible. This means a higher replacement cycle for tablets than smartphones, which is the main reason for slow tablet sales growth.
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