A report from J.P. Morgan on Wednesday morning raised the prospect of a “bubble” risk for the tablet market this year. Many companies are rushing into the sector with hopes of competing with the iPad, which moved nearly 15 million units last year and is expected to grow exponentially this year — especially after the new iPad 2 goes on sale on Friday.
But analyst Mark Moskowitz warns that many of those competing products may be overestimating their chances for success against the Apple(AAPL 352.45, -3.31, -0.93%) juggernaut.
“In our view, the technical and form-factor improvements of the iPad 2 stand to make it tougher for the first generation of competitive offerings to play catch-up, meaning actual shipments could fall well short of plan,” Moskowitz wrote.
Some competing devices already have hit the market. The Xoom from Motorola Mobility Holdings Inc. (MMI 27.00, -0.17, -0.64%) went on sale in late February. Samsung introduced its first Galaxy Tab late last year. ViewSonic launched its ViewPad last week, supporting both the Windows and Android operating systems.
More are coming. The BlackBerry Playbook from Research In Motion Ltd.(RIMM 65.04, +0.26, +0.40%) is expected to launch between late March and mid-April. The TouchPad from Hewlett-Packard Co. (HPQ 42.09, -0.31, -0.73%) is expected by this summer. Companies like Toshiba, LG and Acer are also developing tablet devices for a launch later this year.
But Apple moved the bar last week when it unveiled the iPad 2, which is lighter and thinner than the original with a faster dual-core chip inside. Apple also maintained the same price points as the first iPad, which started at $500. Read MarketWatch’s full coverage on the iPad 2.
The Xoom from Motorola starts at $799 without a two-year wireless contract, though the company is expected to unveil cheaper, WiFi-only models later this year. The Playbook is expected to price under the $500 mark, but offers only a 7-inch screen compared with nearly 10 inches on the iPad. Read full report on how investors appear skeptical of iPad competitors.
According to J.P. Morgan’s estimates, Apple and other manufacturers plan to build about 81 million devices in 2011. That’s about 40% above the 47.9 million units the broker expects to ship to retailers for the year. Even discounting the build projections by 20% leaves an oversupply of nearly 36%, the report read.
As Moskowitz put it: “We do not think the first generation of tablet offerings from Apple wannabes will be enough to drive incremental purchasers within vendors’ projections.”
The main risk from a “tablet bubble” will likely be borne by component suppliers — particularly those who supply LCD screens, memory and processors, the analyst said.
Apple is able to use its market size and enormous cash hoard of nearly $60 billion to lock in long-term supply deals. This may put a pinch on competitors securing their own supply deals. Moskowitz said non-Apple tablet makers likely have overinflated their build plans in part to secure their own supply deals.
Chip makers such as Nvidia Corp.(NVDA 19.16, -0.39, -.00%), Texas Instruments Inc. (TXN 34.91, -0.95, -2.65%), Qualcomm Inc. (QCOM 55.51, -1.64, -2.87%) and Intel Corp. (INTC 21.29, +0.16, +0.76%) are the main players in tablet processors.
Tablets are still a relatively small portion of the chip industry’s revenue base, J.P. Morgan chip analyst Christopher Danely said, though an inventory correction would be a “slight negative” for companies like TI and Cypress Semiconductor Corp. (CY 19.49, -0.85, -4.18%)