Is Apple (AAPL) Ready To Face A New Contender In The Tablet Market? (AMZN)

By: ispeculatornew
Date posted: 09.19.2011 (5:00 am) | Write a Comment  (1 Comment)

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Apple’s iPad has been a major success no matter how you put it. Last week, Research in Motion (RIMM) announced earnings saying it had shipped 200,000 units of its own tablet, the Playbook (compared to 500,000 in the previous quarter). That just shows how much of a lead Apple has. Even strong competitors that ran on Google’s Android operating systems have yet to really worry Apple. How much? Apple currently has a 68% market share in tablets, a 3% increase over last quarter! I think it would be easy to assume that this will simply turn into another Apple story.

What do I mean? The iPod was the perfect example of a product that launched early, improved gradually over the years and never let competitors into the market. How many companies tried to compete with Apple in the digital music space? Probably hundreds, but they never were able to truly get into the game.

Is Apple About To Face Serious Competition In Tablets?

That could however be a different story in tablets as Apple gets ready to face off with Amazon (AMZN), another company that rarely loses in whatever it gets involved in. Amazon has been in the ebook business for a few years now with its Kindle, the clear leader in that category but has yet to truly compete with Apple. Would it have a shot? I think it’s worth at least considering that possibility given Amazon’s solid digital products offering and its unmatched distribution network. I don’t think it would need to be anywhere close to a market leader to hurt Apple. Why? Not having serious competition in iPods has allowed Apple to keep a near monopoly, steady prices and have little worry about what competitors came up with. In a market that is currently growing at a 300% rate year-over-year, that makes a huge difference.

How Far Away Are We?

At this point, there are strong rumors of an Amazon tablet but it’s certainly not 100% clear that it will happen and how it would look like. Would this simply be a more evolved Kindle or is it a completely new offering? Amazon does have a strong relationship with Google, an Android app store, a tablet, relationship with thousands of companies, etc. It is certainly a viable threat.

What makes Amazon Such A Threat After So Many Other Companies Failed?

A few factors make Amazon a credible threat:

Relationship With Content Providers: Amazon has established relationships with thousands of companies including record companies, movie studios, publishers, etc. That could potentially translate into great content being delivered on Amazon’s tablet.

Unparalleled Relationships with customers: HP, Samsung and others have millions of consumers but in almost all cases, those consumers go to stores and sometimes end up buying those brands. Amazon has millions of customers and almost every place on earth that it can easily reach and sell to. In almost all cases, Amazon has a great relationship with those consumers and could certainly sell them on a new device.

The iPad is NOT perfect: The iPad is an incredible device and has been an innovation in so many different ways. That being said, there seems to be a market for cheaper devices and that is certainly something Amazon could deliver on.

Amazon Is Ready: Amazon is said to have ordered 900,000 units of its upcoming tablet device, more than what RIMM’s Playbook has sold this year. How fast could they sell out? It could be quick.

Does It Really Matter To Apple?

I would argue that it does. iPad sales now make up a big portion of Apple’s sales and profits which is also growing very quickly. How profitable are the iPads? Apple’s current margins are estimated to be at 53% on the iPad, a very solid number.I think any credible competition could severely diminish Apple’s long terms prospects for tablet computers. It’s very unlikely that Apple would lose its lead but I could certainly imagine future sale estimates coming under pressure.

Bullish On Amazon

For some time, I was rather negative about Amazon, its kindle and its stock price. But in the last year or so, I have changed my mind and have gone long Amazon a few times. I do remain very much a believer in Apple but I think Amazon is an incredible value at its current price. It has tremendous upside as it continues to lead this fast growing digital revolution.

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1 Comment

  1. […] from Intelligent Speculator presents Is Apple (AAPL) Ready To Face A New Contender In The Tablet Market? (AMZN), and says, “Is Apple ready for a new […]

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