With Apple iPad 3 Coming, Android Tablet Market Should Be Shaking in Its Boots
The strength of the Android tablet market is vastly overstated.
There is no doubt that Apple (AAPL) is about to unleash the iPad 3, the third edition in the company's series of dominant tablet computers.
Apple recently sent out an invitation to reporters, including a graphic of what is almost undoubtedly an iPad, along with the message: "We have something you really want to see. And touch."
In fact, anticipation of the iPad 3, and the iPhone 5, has Apple blasting its way over the $500 billion market capitalization mark, much to the chagrin of crybaby bears that regularly fall over themselves to call the top.
Here's the invitation, courtesy of our friends over at The Verge:
Let's break this image down. The size of the finger relative to the icon and the bezel indicates that the iPad 3 won't be any smaller than the 9.5" x 7.3" iPad 2.
As for the text, "we have something you really have to see" could mean that a) the device itself is spectacular looking, b) the screen has been massively upgraded, or c) both.
I'm going with "c."
Unlike its competitors, Apple seems incapable of making even a mediocre-looking product. Even if you hate how they operate, you have to admit that Apple's products all look great.
It has been rumored that the iPad 3 would receive a significant upgrade in screen resolution from the iPad 2's 1024 x 768 display, and it makes sense that Apple's going to raise the bar on the iPad's resolution for the first time.
The rumored resolution of the new screen is 2,048 x 1,536, which is more than enough to display full 1080p video, though on such a small screen, it's more or less pointless.
Additionally, a big upgrade in screen resolution will likely mean the iPad 3 will be powered by a quad-core processor, and the 3G models will be upgraded to 4G/TE. Higher resolution requires more processing power, and a 4G data feed would certainly be helpful in streaming 1080p video from Netflix (NFLX) or other sources.
If a 4G iPad is a reality, however, I would certainly hope that the wireless carriers are upgrading their networks in advance of the coming data deluge.
Ultimately, however, I don't think much of this matters, because Apple product buyers tend not to concern themselves with technical specifications -- they just want their gear to look good and be easy to use.
That's why I'm far more intrigued by the phrase, "And touch," which implies a significant upgrade in the touchscreen interface.
In July of 2010, I discussed how companies like Apple and Nintendo (NTDOY.PK) changed the games in their respective industries with advancements in the human-gadget interface (see: Tech Stock Winners Demonstrate the Power of the Interface).
To make a long story short, when you give people a new way to interact with technology products, they tend to pay attention -- and pay up.
Remember when Activision's (ATVI) Guitar Hero took the video-game world by storm back in 2006-2008?
The fact that Apple is stepping up its advancements in the interface yet again should have the Google (GOOG) Android tablet market shaking in its boots.
Think about this.
The Apple iPad 2 has beaten the living daylights out of the Android tablet industry, even though that model actually wasn't much different than 2010's iPad 1.
You don' t believe me? Fine. Let's talk stats.
Let's look at fourth-quarter tablet market share, courtesy of our buddies at Strategy Analytics:
The dark side of Android is the fact that 40% of its slice -- or 16% of the entire tablet market -- is comprised of the cut-price, money-losing Amazon (AMZN) Kindle Fire and Barnes & Noble (BKS) Nook Tablet.
This means that Apple's iPad is still at least 2.5 times as big as its real competition, assuming we don't worry about "Other" (58% divided by 23% = 2.5).
In fact, considering how many junkie, low-priced Android tablets are floating around, the iPad could easily be four to five times as big in tablets priced, say, $400 and up.
And this is with an iPad 2 that was barely upgraded over the 2010 model!
Remember, the Kindle Fire and NOOK tablet have destroyed the notion of making money in low-end Android tablets. And since they came to market in the fourth quarter of 2011, they accounted for a disproportionate portion of Android tablet growth.
Android tablets are growing faster than Apple on a unit basis, but not on a profit basis simply because the Android market is being boosted by unprofitable models that wreck things for the rest of the competition.
The Bottom Line
The low end of Android is owned by the Kindle Fire and NOOK tablet, which are not designed as profit centers in and of themselves, but as entries into Amazon and Barnes & Noble's content ecosystems. Apple doesn't care about this market, and rightfully so.
But what's going to happen to the high end of Android, which as we've shown isn't very big, when Apple releases the first significant upgrade to the iPad line?
Remember, as it stands, nobody's making big money in pricey Android tablets, except perhaps for Samsung, which is incidentally the only competitor left standing in smartphones, as evidenced by the fall of Research In Motion (RIMM), Motorola Mobility (MMI), and HTC.
Bottom line is, the Google Android tablet world is in a lot of trouble. The Kindle Fire and NOOK tablet have destroyed the notion of making money at the low end, and the high end is about to be walloped by the iPad 3.
A Word on the Stocks...
I remain long and strong Apple as I continue to believe the competition in every product category is getting weaker, and the coming Apple television (just don't ask when...) represents an annual revenue opportunity of $25 billion-plus.
I covered my Amazon short yesterday to cut losses on my put option position, but will look to get on that again before earnings.
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