What Happens to Apple if Android Gains Steam in Tablets
Google’s (NASDAQ:GOOG) Android operating system has started to become a thorn in the side of Apple (NASDAQ:AAPL), making rapid strides to close the gap with Apple’s iPhone OS. Android is not only catching up to Apple, but also pushing aside competitors like Research in Motion (NASDAQ:RIMM), Nokia (NYSE:NOK) and Microsoft (NASDAQ:MSFT) in the smartphone OS market.
Android’s U.S. smartphone subscriber market share has come a long way from the 4% reported in November 2009. [1] Its market share hit 23% by October 2010 and increased further to around 31% by January 2011. [2]
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Can Android repeat the same success in the tablet market as well? It’s anyone’s guess at this point, but the operating system nonetheless remains a real threat to unseat the dominance of Apple’s iPad. Here we take a closer look at this scenario and the potential impact on our $420 price estimate for Apple stock, which stands about 20% above the stock’s market price.
Android Preparing for a Tablet Push
The tablet market is expected to grow from 17 million units in 2010 to about 71 million in 2012. [3] Apple’s iPad undoubtedly dominated the tablet landscape in 2010, with its 14.8 million unit sales implying market share of 87%.
See our full analysis and $420 price estimate for Apple
However, Google has elbowed its way into the fast growing tablet market, as it previously did in the smartphone market. Google is on the verge of releasing a new Android version called Honeycomb, designed specifically for tablets. New features include support for big screens (7 to 9 inch), a totally revamped user interface, extensive multi-tasking and multiple home screens. [4]
Potential Impact to Apple Stock
If Google can mirror its smartphone OS success in the tablet market, Google could soon overtake Apple. If this is the case, Apple’s market share could decline from its 87% in 2010 to less than 50% by 2012. Apple’s market share could be further pressured by RIM’s upcoming launch of its PlayBook tablet.
If Apple’s share in the tablet market declines to 30% by 2012, it would mean around 21 million iPads sold in 2012 by our estimates. This scenario implies 2% downside to our $420 price estimate for Apple stock. This might not be much, but again, this is only considering the iPad. Since the iPhone constitutes more than 50% of Apple’s stock value by our estimates, Android’s increasing presence in smartphone OS creates another (and larger) threat.
Notes:- Comscore U.S. smartphone subscriber market report for November 2009, April 5th 2010 report [↩]
- Comscore U.S. smartphone subscriber market report for January 2011, March 7th 2011 report [↩]
- IDC: Tablet market forecast, January 2011 [↩]
- Yahoo News: Google invites media to Android Honeycomb event, January 2011 [↩]