Google’s Entry Into Tablets May Be Fraught with Risks

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Rumors around Google’s (NASDAQ:GOOG) entry into the tablet market is gathering steam. According to a report, Google may introduce a 7-inch tablet later this year. [1] We believe that Google’s entry into the tablet market is fraught with risks. It will not only have to compete with established players such as Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), but also a 7-inch tablet may not provide an ideal user interface on a fundamental basis. Apple dominates this market, and the impending launch of iPad 3 in March could make matters worse for Google. The iPad accounts for about 13% of our $550 price estimate for Apple stock. Our price estimate for Apple stock is about 5% above the current market price.

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iPad 3 to Help Apple Maintain Dominance

Although tablet sales this quarter may suffer from a hangover following the holiday season, the situation next quarter could be quite different with the launch of iPad 3. According to a DigiTimes report, the global tablet shipments will decline by 30% in Q1 2012 compared to Q4 2011. [2] However, the iPad 3, which is expected to be introduced later this quarter, could help boost the tablet market and may also be partly responsible why buyers might hold off making purchases in the beginning months.

Google’s 7 inch tablet may not find acceptance

Steve Jobs famously once proclaimed that competitors’ 7 inch were “Dead on Arrival,” citing that tablets should have a minimum 10-inch screen for optimal user interface experience (see Do 7-Inch Tablets Stand a Chance?). Part of this stemmed from the fact that the 7-incher is a tweener — too big to be a smartphone and too small to be an effective tablet.

If Google indeed comes up with a 7-inch tablet design, it could be challenge to take share from the incumbents and gain meaningful penetration in this difficult market.

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Notes:
  1. Google may enter tablet market with 7-inch design, CNet quoting DisplaySearch analyst as the source, February 23rd, 2012 []
  2. Global tablet PC shipments down 30%, says Digitimes Research, February 20th, 2012 []