Tablets Need to Get into $200 - $250 Range to Become Popular - Analyst

Market Potential of Tablets Heavily Depends on Pricing

by Anton Shilov
02/17/2011 | 10:19 AM

Many market observers and analysts draw pretty rosy picture for media tablets' market prospects. Some estimate that the total available market of various personal computers in slate form-factor may be as high as 50 million to 60 million already this year. However, with the price that starts at approximately $500 it is highly unlikely that this goal will be reached.

 

"We are not as optimistic about tablet growth as are our peers. Based on the price elasticity for other consumer devices, tablet devices would need to decline to approximately $200 - $250 to expand the market above 50 million units annually," said Glen Yeung, an analyst with Citigroup, reports Barron's web-site.

Following the success of Apple iPad, tens of companies have introduced or plan to introduce their media tablets as well as PC tablets later this year. However, pricing of the majority of devices announced so far is higher than $400 (iPad starts at $499) and some will cost $700 to $800 in the U.S. Meanwhile, in some European countries Samsung Galaxy Tab, a 7" slate costs around $1000. Naturally, the overpricing happens as a result of frenzy towards tablets by early adopters, however, there are also natural technology constraints that do not allow to make tablets truly inexpensive for the masses. That inability, coupled with over-optimistic expectations, may cause excessive production of semiconductors for tablets that will not be utilized. As a result, companies like Freescale, Nvidia, Qualcomm, Texas Instruments and others may suffer.

"With the constraints of current technology, [selling tablets at $200 - $250] is not possible. With this is mind, we suspect that the 50 million to 60 million tablet build forecasts for 2011 could result in excess inventories, likely evident by 2H 2011. The counter-argument is simple: tablets will sell well. And while we cannot definitively say they will not, we believe the risk of excess inventory will keep Nvidia Tegra-related multiples range-bound," added Mr. Yeung.

Apple managed to sell 15 million iPad gadgets in 2010, Samsung Electronics sold 2 million of Galaxy Tab slates, whereas various makers of netbooks supplied around 35 million of netbooks. Netbooks are much less expensive than tablets and therefore have better volume opportunities. A big question is whether tablets will be bought in addition to notebooks or instead of netbooks as in the former case the market potential of tablets is much higher than that in the latter.