The evidence mounts: we are headed for a monumental glut of tablet PCs.
Spurred by the early success of the Apple(AAPL) iPad, almost every PC, mobile phone and consumer electronics company has decided to just into the tablet market. And the result is almost surely going to be a huge glut of the things later this, with intense pressure on pricing and an inevitable shakeout.
J.P. Morgan analyst Rod Hall notes in a research report this morning that Apple and other tablet “makers/hopefuls” plan to build 81 million tablets in 2011. That would be fine, except for the fact that he sees actual tablet demand at 47.9 million units. “While it is nearly impossible to both predict tablet build and demand a full year in advance, we believe the significant difference between build plans and forecasts is reason for concern,” he writes.
Compounding the issue, he says it is “difficult to believe that many consumers will opt to go for tablets other than the iPad 2 this year.” He notes that Apple’s tablet “has strong momentum,” as well as a “material price/cost advantage” over most competitive products.
For Motorola Mobility, he is currently forecasting 2.4 million tablet shipments for 2011, or about 7% of his projected 71 cents a share in profits for the quarter. “While we suspect MMI has been cautious in its plans for the XOOM and other tablets, we find it difficult to believe that the company won’t find itself with tablet inventory issues at some point in 2011,” he writes.
As for RIMM, Hall sees the company shipping 3.1 million Playbook tablets in the February 2012 fiscal year, accounting for just 1.8% of its EPS forecast for the year of $7.19 a share.
Hall is not the first person to point out the looming glut in tablets; as I pointed out in a blog post last month, the tech newsletter writer Fred Hickey made the same point in a recent edition of his publication. And Citigroup recently reduced its rating on Nvidia (NVDA) shares based on the potential for an over-supply of tablets and related chips later this year.
That leaves investors in a tablet conundrum. They want to play the trend – but the expanded competition in both tablets and the chips that power them threaten almost every player other than Apple. And meanwhile, the possibility of a glut – and the price pressures that will inevitably follow – seems likely to aggravate the pressure tablets already are already creating for the mainstream PC sector and key suppliers like Intel, Microsoft and the disk-drive makers. If there are winners here long-term beyond Apple – and perhaps Google, if Android-based tablets can get some traction – they are not especially obvious.