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Daily: The tablet market will be increasingly important for mobile

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Editor’s note: The daily post will not appear as regularly over the next week due to Edward’s schedule. In addition, Edward may not post weekly or member posts during this time, However, he will try to get as much content out as he can during this next week.

Today’s daily links will be focused exclusively on the technology space. And there are a lot of links here that point to the tablet market as crucial for Apple’s iOS, Google’s Android, and Microsoft’s Windows Mobile platforms. I see this as a continuation of the ideas I had on Saturday about the corporate market and tablet penetration. I see the mobile marketplace as crucial in the technology world as cloud computing strategies come to dominate the strategies and computing infrastructure for businesses catering for businesses and households alike in the computing space.

As I wrote on Friday, the latest IDC numbers are particularly alarming for Apple as they show a market share dominance by Android that I found surprising. In essence, the numbers point to the potential for Android to take on Wintel-like dominance in the mobile market with 75% of the market going to Android in Q3 2012. An Article from Asymco paints a different picture but I am inclined to believe IDC’s analysis paints a more accurate picture. To the degree network effects exist at all in mobile – and I believe they are much smaller today than they were on desktop computers in the 1990s – then Apple has a market share problem that can only be fixed by dropping margins.

What Apple must realise also is that to the degree that network effects exist in smartphones, they will carry over into the tablet market. Android and iOS are competing for the combined tablet and smartphone mobile market. Each will be able to leverage their offering in one space into the other because most users will likely eventually have both tablets and handsets and want to sync these devices in the cloud. Microsoft is in a slightly different position in that it can leverage its existing PC dominance into market share in mobile by concentrating on tablets and the corporate marketplace.

And I think this is the real battle here. According to Gartner, businesses will not lag consumers in the tablet market. Gartner predicts business will want tablets so much that their purchases will grow 3x by 2016. This dovetails with what I wrote on Saturday about the utility of tablets in a corporate environment in today’s mobile cloud computing world. In my view, this puts Microsoft in a more advantageous position than many realise because not only does it have a significant install base for corporate workstations and servers, unlike Apple or Google, but Microsoft also has a tablet offering which will be much more interesting to the corporate environment. The Windows tablets are essentially keyboard-detachable laptops that have dual functionality as a tablet and laptop, something I believe will greatly interest corporations. Moreover, the infrastructure costs of moving to a fleet of Microsoft Windows tablets as compared to moving to Apple or Android tablets are much lower as is the corporate complexity. I consider the corporate market Microsoft’s ace in the hole.

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As a last thought, I want to mention Techcrunch’s article on Mary Meeker’s Internet Trends update. Meeker is now saying that iPad adoption is accelerating five times faster than iPhone adoption whereas she said this differential was 3x in May. That means that the smartphone handset market is maturing quickly and the momentum in mobile is moving increasingly to tablets. This bolsters my sense that tablets represent the real mobile battleground for the future. I would also like to point out that Meeker boosted her Android adoption rate to 6x the iPhone versus 4x the iPhone adoption rate in May. This confirms the alarming nature of the IDC data and casts doubt on Asymco’s Apple-centric analysis.

Bottom line: Microsoft is well positioned in tablets if it can take share via the corporate market. But at present, this is a market dominated by Apple, but one where it is losing market share rapidly. I see the market as up for grabs at this point, with Android having the best advantage because of its higher consumer adoption rates. Apple needs to penetrate corporates now and Microsoft needs to lever corporates to increase share.

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Tablet wars

IDC: Android OEMs, iPad Mini Rumors Slowed iPad Sales In Q3: Apple 50.4%, Samsung 18.4%, Amazon 9%, Asus 8.6% Tablet Marketshare | TechCrunch

“Apple’s lead in the tablet market took its first serious dent in Q3, according to estimates from analyst IDC, based on tablet shipments (rather than sales). Apple’s dominant share of the market shrunk in the third quarter of this year, dropping from 59.7 percent in the year ago period (and 65.5 percent in the second quarter of this year) to 50.4 percent in Q3 this year, while Samsung and Amazon both grew their share: Samsung took close to a fifth (18.4 percent) of the market in Q3, up from 6.5 percent in the year ago period, while Amazon grew from nothing last year to almost a tenth (9 percent) in Q3, following the launch of its original 7-inch Kindle Fire and 7-inch and 8.9-inch Kindle Fire HD tablets.”

The late smartphone adopter paradox | asymco

This analysis seems very Apple-biased and I am wary of using it in any way to predict the market’s future. However, I think it is noteworthy and have included it in the links for that reason. My general view here is that late smartphone adopters will be more price sensitive than early users and that favors low-cost producers who gravitate to the Android platform.

“However, if we look at the last 12 months, the split is 23.5 million for Android and 17.0 million for iOS. Android gained 58% of the growth and Apple captured 42%–a change in “spread” from 40 points to 16 in favor of Android.

In the last six months, Android share growth is slowing while iOS is still gaining.

If this trend continues then the next 50% may not behave as one might expect (namely that late adopters would take the low-cost commodity offering accelerating Android adoption.) Late adopters may, in fact, be choosier than early adopters. And it’s not at the cost of overall growth. Late adopters are still converting at the same rate of the early adopters.

Therefore, paradoxically, the late market shows that the prospect for iOS growth seems strong. Furthermore, as we do reach saturation, perhaps in another three years, the secular growth may end in the US but the loyalty of iOS usage may give iOS another advantage in a market where growth is determined by ”platform churn””

Mary Meeker Gives Mid-Year Internet Trends Report: Android Adoption Ramping Up 6X Faster Than iPhone | TechCrunch

“Meeker noted that iPad adoption is now ramping up five times faster than iPhone adoption, up from 3X in her May report. Meanwhile Android adoption is increasing six times faster than iPhone adoption, up from 4X.”

Gartner: 1.2 Billion Smartphones, Tablets To Be Bought Worldwide In 2013; 821 Million This Year: 70% Of Total Device Sales | TechCrunch

“While businesses have traditionally lagged consumer markets when it comes to adopting new devices, tablet sales to businesses are set to grow substantially in the coming years, according to Gartner. It’s predicting tablet purchases by businesses will grow 3x by 2016 — describing slates as “they key accelerator to mobility” for enterprises. Tablet purchases by businesses will reach 13 million units this year, says Gartner, more than tripling by 2016 to reach 53 million units.”

 

Other tech links

Zillow Acquires Mortgage Software Company Mortech For $17 Million | TechCrunch

“After reporting earnings today, Zillow has also announced the acquisition of mortgage software company Mortech.

The financial terms of the acquisition is approximately $12 million in cash and 150,000 shares of restricted stock, around $17 million at today’s stock price of $34.37 at the close of market. The deal is expected to close in the fourth quarter of 2012.”

Avoid PayPal’s High International Currency Exchange Rates by Making One Little Adjustment During Checkout

“Instead, he just switched to the second option presented to him during the transaction that allowed him to be billed in the seller’s local currency (“Bill me in the currency listed on the seller’s invoice”), then paid as normal. The bank needed to handle the conversion of the funds, but it came at a much lower rate than PayPal.”

Stores aren’t for selling, they are for delighting your customers — Tech News and Analysis

“Designing a store that’s not about selling products, but is instead about delighting and engaging with the customer may be the future of retail if George Blankenship of Tesla Motors has his way. Blankenship shares his retail vision honed at Apple and at Tesla.”

Review: Apple’s fourth-generation iPad

“Arguably the biggest surprise product debut from Apple in 2012 is the new fourth-generation iPad, a tablet that replaces its predecessor and doubles its performance after less than a year on the market.”

Apple posts new notice saying Samsung didn’t copy iPad on UK website

“At the bottom of the page, Apple’s statement in a large font size tells visitors that its previous legal notice, published on Oct. 25, was “inaccurate and did not comply with the order of the Court of Appeal of England and Wales.” It includes a link to the new, full, correct statement.”

The iPad Mini Is The Ideal Second Screen Companion | TechCrunch

“One thing that’s become apparent about the iPad mini during my past few days with it is just how well it fills the role of a second-screen device. The iPhone and the iPad both have their merits as a companion while lounging around and watching TV, but the iPad mini hits the sweet spot of portability, power and connectivity for that use case. Fellow TC writer MG Siegler already explained why he thinks the iPad mini will eventually overtake the full-sized iPad as the sales leader for Apple, and I agree 100 percent, but zeroing in on its second screen suitability might help convince those who still doubt that the smaller iPad will eventually take the crown.”

Teardown Shows Apple iPad Mini Costs at Least $188 to Build

“Previously known as iSuppli, and widely known for its so-called “teardown” analysis reports, IHS has just completed its teardown report on the Apple’s newest iteration of the tablet. The verdict: The base model, a Wi-Fi-only 16 gigabyte iPad mini, which sells for a starting retail price of $329, costs about $188 to build. Adding additional memory — the options are 32GB and 64GB — adds only incremental cost but a fair amount of profit, amounting to an additional $90 for the 32GB version and $162 per unit on the 64GB model. (I revised this paragraph. See my note below.)”

Two More Teardowns Look Inside Microsoft Surface and Amazon Kindle Fire HD

“You have to credit the folks over at research firm IHS, because, apparently, they’ve pulling a little bit of overtime. Along with the teardown of Apple’s iPad mini, the results of which they sent to AllThingsD yesterday, they also included their first looks inside Microsoft’s Surface and Amazon’s seven-inch Kindle Fire HD. 
Let’s get to the Surface first. (That’s a picture of it taken apart, at right.) With a base price of $499 for a 32 gigabyte Surface without the Touch Cover accessory, IHS estimates that the cost of components used to build it amount to $271 for a starter 32GB model, without the cover. The main components include a Tegra 3 processor chip from Nvidia, and a display and memory chips from Samsung. (Of course, Microsoft is probably buying memory chips from more than one vendor.)”

Teardown reveals iPad mini yields 43% gross margin for Apple

“In a teardown of Apple’s new iPad mini over the weekend, IHS iSuppli analysts found the base 16GB Wi-Fi only model to cost about $188 to build, meaning the device could yield a gross profit margin of 43 percent, depending on variable factors like shipping costs. “

iPad Mini promises big sales volumes-yet a teeny, tiny profit – Apple News, Tips and Reviews

“Apple’s latest has critics debating whether it’ll be an overnight success or overpriced misstep. Rags Srinivasan says the data shows another option that is a major departure for the company: a best selling device that earns little money.”

iPad mini display found to be ‘just very capable,’ outperformed by rivals

“An in-depth look at iPad mini’s display found the 7.9-inch panel to be wanting in many areas where Apple usually excels, such as color gamut, and is surpassed by competing devices from Google and Amazon. “

Apple Vs Motorola Mobility: U.S. Judge Dismisses Apple Patent Licensing Lawsuit | TechCrunch

“A judge in a U.S court has dismissed a case brought by Apple against Google-owned Motorola Mobility. Apple had complained Motorola was seeking excessive royalties for standards-essential patents. It’s another small blow for Apple in its legal war against Android. The patents in question are among the 17,000 acquired by Google when it bought Motorola Mobility last year – to bolster Android against legal attacks.

According to the BBC, Motorola sought 2.25 percent of the price of Apple products that use some of its patents — but Apple was only prepared to pay $1 per device.”

Motorola Says Wisconsin Court Throws Out Apple Patent Suit

““We’re pleased that the court has dismissed Apple’s lawsuit with prejudice,” Motorola said in a statement to AllThingsD. “Motorola has long offered licensing to our extensive patent portfolio at a reasonable and non-discriminatory rate in line with industry standards. We remain interested in reaching an agreement with Apple.””

Googlers worried about Apple approving Maps app probably shouldn’t be — Apple News, Tips and Reviews

“Google might be getting antsy about getting its mapping app for iOS approved by Apple. Monday anonymous sources at the company said they’re pessimistic that Apple will approve a competing Google Maps app. But that goes against what the company’s chairman has been saying.”

Real Estate Site Zillow (Barely) Beats Analyst Estimates For Q3: $31.9M In Revenue, $0.08 EPS, Tops 1 Billion Mobile Home Views | TechCrunch

“Real estate site Zillow just released its third-quarter earnings report, once again coming in just ahead of what Wall Street analysts had predicted. The company said it saw $31.9 million in revenue and earnings of 8 cents per share in the quarter ending September 30. That’s up from revenue of $19.1 million and EPS of 2 cents during the same quarter last year.”

Why I just dumped the iPad 3 (Hint: iPad mini!) — Apple News, Tips and Reviews

“With only a few days of iPad mini use, I know it’s the right iPad for me. Sure, it lacks a Retina display, but the screen has a higher pixel density than the first few iPads. After two years of pining, this was worth the wait.”

Apple Reportedly Looking Into Switching From Intel To In-House Chips For Macs | TechCrunch

“Bloomberg has reported similar planned changes in the past, in a retrospective reflecting on the year since Steve Jobs’ death. And around a year ago there were rumors that it was looking at alternatives to Intel as well. The hurdles involved include making sure that software works on Macs based on the new processors; when Apple went from PowerPC to Intel, the transition left a lot of legacy software incompatible and led to transition issues around porting software.

Apple would also have to be extremely confident in their new chipmaking powers in order to drop Intel, and this isn’t likely something we’ll see happen overnight, even now that they’ve achieved greater maturity with their mobile efforts. I’d expect Apple to deliver new architecture alongside a significant OS update, maybe an evolution that finally carries us out of the OS X generation.”

Why Apple could be getting closer to building its own Mac chips — Apple News, Tips and Reviews

“Yet another report indicates that Apple might be aiming to move away from Intel chips in its Mac lineup. Bloomberg says the company wants to get its mobile and PC products on the same chip architecture. Here’s why that could actually happen.”

BBC News – Apple paid only 2% corporation tax outside US

“The company paid $713m (£445m) in the year to 29 September on foreign pre-tax profits of $36.8bn, a rate of 1.9%.

It is the latest company to be identified as paying low rates of overseas tax, following Starbucks, Facebook and Google in recent weeks.

It has not been suggested that any of their tax avoidance schemes are illegal.”   

Rochdale Said to Seek Capital Lifeline After Trading Error – Bloomberg

“Rochdale bought more Apple shares than the brokerage’s management intended around the technology company’s Oct. 25 earnings report, two of the people said. Rochdale officials told employees that a rogue trader amassed the position, one of the people said.”

Apple Sells 3 Million iPad Minis And 4th Generation iPads In 3 Days | TechCrunch

“Apple has managed to sell a whopping 3 million of both devices in a very short period of time. For reference, Asus has said that the company sells around 1 million Nexus 7 tablets per month.

At the same time, this isn’t exactly the level of opening day, weekend, or week sales we usually see out of Apple. Apple’s 3rd generation iPad, however, sold 3 million on its own during its opening weekend last March, so this time around two separate device lines are splitting the same number of sales. The iPhone 5 had 2 million pre-orders in 24 hours, and sold 5 million in the first weekend.”

Nearly 1 in 4 computers sold last quarter were tablets — Mobile Technology News

“Tablet sales are rising says IDC, as 27.7 million slates were sold in the last quarter. Apple still holds a majority market share as Samsung, Amazon and others are catching up to the iPad. But there’s a bigger story here when it comes to PCs.”

Android Tablets Gain Momentum in the Third Quarter, Expectations Remain High for the Holiday Quarter, According to IDC – prUS23772412

“Worldwide tablet shipments totaled 27.8 million units in the third quarter of 2012 (3Q12), according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker. The tablet market grew 49.5% year over year in 3Q12 and 6.7% over the second quarter of 2012. Android shipments, led by Samsung and Amazon, surged during the quarter, at the expense of Apple, which saw its share slip notably during the quarter.”

iPad mini is Windows 8 hardware makers’ worst nightmare, analyst says

“Apple’s iPad mini is predicted to be the source of much strife for competing tablet makers during the upcoming holiday shopping season, and one analyst believes the 7.9-inch device will cut into sales of newly-released Windows 8 products. “

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About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.