A painful blow to the tablet market, Morgan Stanley slashes growth estimates

Summary:It's not surprising. The signs have been there for a while — not least Apple's dismal iPad figures for the second quarter.

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Image: CNET/CBS Interactive

It's not quite a death sentence for the tablet market, but it's glory days may be over — if the latest research proves true.

Morgan Stanley analyst Katy Huberty said in a research note on Sunday that the investment giant is lowing its tablet growth forecast by more than half — from 26 percent to 12 percent — for 2014.

The reason? Mostly due to the "lack of new, differentiated products," she wrote.

Although the slowdown in tablet growth might help the ailing PC market, its global PC market estimates remain unchanged, down by 5 percent this year and the year after.

The iPad, back in 2010 when it was first released, didn't just spearhead the design of the slate-like device as we know today. It was the first modern-day tablet that single-handedly carved out the entire tablet market. But four years later, iPads missed Wall Street estimates for the second-quarter  by a long shot.

Apple was expected to sell 19.2 million iPads, down from 19.4 million on the year-ago quarter, according to average analyst estimates. But Apple pulled through with just 16.35 million iPads sold during the three-month period. iPhones helped to offset any revenue decline during the quarter thanks to shooting off the estimates scale.

Apple chief executive Tim Cook explained on the follow-up investors call that it was more a blip than anything too drastic.

He said that there were two factors for missing estimates. In the same quarter a year prior, Apple increased iPad channel inventory, whereas in this quarter it was reduced. And secondly, Apple ended the first quarter, its main holiday season, with a backlog of iPad mini, which was subsequently shipped during the second quarter just ended.

Whether or not that's an accurate portrayal of Apple's own business, many are looking at Apple's iPad business as an indicator of the overall health of the tablet market.

And it's not just Morgan Stanley saying it.

Research firm IDC said earlier this month growth in tablet market is declining, with the iPad slowly slipping away from its prime position at the top of the market share table.

According to its latest data, over the 12-month period the tablet market grew by 3.9 percent, down from previous expectations.

IDC called the slowdown "challenging." 

Apple saw a 16.1 percent decline year-over-year for the first quarter, dropping from 19.5 million shipments to 16.4 million shipments. That represents a 32.5 percent of the overall share, down from 40.2 percent in the first-quarter of 2013.

At this rate, Samsung could become the market leader in the tablet space — albeit with a larger range of devices than Apple — by the middle of next year. And that's even taking into account the slowdown of the tablet market.

Topics: Tablets, Mobility

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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