Tablet sales recently fell for the first time since Apple launched the iPad in 2010. According to IDC, worldwide tablet shipments slipped 3% year over year in the fourth quarter of 2014.
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That slowdown shouldn't be surprising, since Apple -- which controls 28% of the tablet market -- already reported four consecutive year-over-year declines in iPad sales. Last quarter, iPad unit sales fell 18%. Meanwhile, Samsung's 2014 tablet shipments rose 1.1% year over year, giving it an 11% share of the market, but its fourth quarter shipments also plunged 18%.
For the full year, worldwide tablet shipments rose 4.4% to 229.6 million shipments. By comparison, tablet sales surged 78% in 2012 and 51% in 2013.
The massive slowdown has been attributed to the rise of phablets and two-in-one devices, which lure away customers who prefer smaller media consumption tablets or bigger productivity ones. If that downward trend continues, the tablet market could post negative growth this year. Let's take a look at how this impacts the major industry players.
Not that bad for Apple ...
The iPad could certainly be headed the way of the iPod. Between the first quarters of 2012 and 2015, the iPad's weight on Apple's top line dropped from 20% to 12%.
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Apple's iPad Mini 3. Source: Apple
But during that period, Apple's quarterly revenue rose from $46.3 billion to $74.6 billion, indicating the iPad's decline wasn't slowing Apple down. Instead, the weight of the iPhone, which arrived three years before the iPad, was rising. Back in the first quarter of 2012, the iPhone accounted for 53% of Apple's revenue. Last quarter, it accounted for nearly 69%. iPhone revenue rose 57% year over year last quarter, easily offsetting the iPad's decline.
Apple also likely cannibalized the iPad Mini with the iPhone 6 Plus, which the company used to even the odds against Samsung and other phablet makers. That strategy isn't new to Apple -- it did the same thing by cannibalizing the iPod with the iPhone. However, Apple still needs to diversify its top line with new products, like Apple Watch, to avoid being torpedoed by a slowdown in iPhone sales.
To prop up iPad sales in the meantime, I expect Apple to eventually replace the iPad Miniwith the long-rumored 12- or 13-inchiPad Pro, which might be paired with a keyboard and stylus to compete against Microsoft's Surface Pro 3.
... but pretty bad for Samsung
Samsung, however, can't use its smartphone business to offset slower tablet sales. Between the fourth quarters of 2013 and 2014, IDC reported that Samsung's global smartphone market share fell from 28.8% to 20%, as Apple's rose from 17.4% to 19.9%. Samsung's smartphone shipments fell 11% year over year to 75.1 million units.
Samsung's Galaxy Tab 4. Source: Samsung
Samsung is being crushed by Apple in the premium market and by cheaper rivals like Xiaomi in the mid and lower-end markets. Margins also fell as Samsung crammed in more expensive hardware to win over consumers. As a result, earnings at Samsung's mobile division fell 64% year over year in the fourth quarter -- its fifth consecutive quarter of declines -- and contributed to the company's first annual earnings decline in three years.
Samsung shipped 11 million tablets in the fourth quarter, down from 13.5 million units a year ago and substantially less than Apple's 21.4 million iPad shipments. Like Apple, Samsung is likely cannibalizing its smaller Galaxy Tab 4 tablets with its Note 4 phablet. Unfortunately, that cannibalization isn't strengthening the Note 4's position against the iPhone 6 Plus. Instead, the Note 4 is being challenged by beefy rivals like the OnePlus One phablet, which offer comparable features at a fraction of the price.
Rolling with the punches
Apple and Samsung's tablet businesses took big hits in the fourth quarter, but others fared much worse.
Asus' tablet shipments fell 25% and Amazon's plunged 70%. However, shipments of Lenovo tablets climbed 9% and claimed nearly 5% of the market. Lenovo bucks the trend by offering tablets in most screen sizes for both Android and Windows users, which lets it reach more users than other Android-only manufacturers.
Looking ahead, the tablet market won't fade away, but it will evolve as phablets and two-in-one devices split the market. To stay relevant, companies must expand to those markets instead of sticking with traditional iPad-like tablets, which are becoming too commoditized to remain profitable.
The article Which Will Plunging Tablet Sales Hurt Worse -- Apple Inc. or Samsung? originally appeared on Fool.com.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com, Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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