Apple Inc is expected to unveil thinner and more powerful iPads on Thursday ahead of the holiday season but may struggle to arouse passion for tablets among consumers already over-supplied with hand-held, touch-screen devices.
Tablet sales are set to rise only 11 per cent this year, according to new forecasts by tech research firm Gartner, compared to 55 per cent growth last year, even as smartphone sales continue to soar and PC sales trickle back.
Tablet sales for Apple, which defined the category with the iPad just four years ago, have fallen for two straight quarters. Investors remain focused on the iPhone, Apple's main revenue generator, but a prolonged downturn in iPad sales would threaten about 15 per cent of the company's revenue.
Aside from Apple, the tablet trend is bad news also for Samsung, Amazon.com and Microsoft, which have all invested heavily in developing tablets and are pushing their own offerings for the upcoming holiday season.
"I don't think they (Apple) will be able to turn it around, because the market is saturated," said Michael Yoshikami, chief executive officer of Destination Wealth Management. "The new devices are not going to be new enough to cause a new upgrade cycle."
More than 50 per cent of households in the United States, for example, already have one or more tablets, and are waiting longer to replace them. "Going beyond 50 per cent will take a while," said Mikako Kitagawa, an analyst at Gartner.
According to Kitagawa, most people in future will have a smartphone. Beyond that the trends are hard to predict. "You need to have a smartphone. It's a must-have device, then you think about the larger screen-size devices."
SQUEEZED ON BOTH SIDES
Tablets now find themselves squeezed from below by ever-larger smartphones, such as Apple's new iPhone 6 Plus and Samsung's Galaxy "phablets," and from above by the latest lightweight laptops.
Gartner is forecasting that this "ultramobile premium" segment - for example Apple's MacBook Air or Lenovo's Yoga - will be the fastest-growing device category next year, rather than tablets.
For now, if Apple is going to dominate in one area only, it would be better to be smartphones than tablets, said Daniel Niles, senior portfolio manager at AlphaOne Capital Partners. "We would be worried if it was the other way around," he said.
Other investors appear to agree. Apple shares are up 39 per cent in the last year, compared to a 10 per cent increase in the S&P 500.
Yoshikami said it is too early to see any impact from Apple's July agreement with IBM to collaborate on selling iPads and iPhones to enterprises, which Apple hopes will help it finally crack the elusive mainstream business market.
Even if that fails to produce results, he said he was not overly concerned with weakening tablet sales.
"From an investment standpoint, it is not necessarily disastrous for Apple, as I think their fortunes are pretty much tied to iPhone sales," said Yoshikami. "It's all about iPhone sales."