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TheStreet Open House

Do Tablet Maker Stocks Face Downside as Tablet Shipments Slip?

Chris Lau, Kapitall: Shipments of tablet computers may slip for 2014. Will that put downward pressure on these tablet maker stocks?

IDC reduced its worldwide tablet shipment forecast for 2014, setting the stage for disappointment reports from many computer companies. Apple (AAPL) may have lost the race to Android for total tablet users, but its profit margins remain safe.

Tablet growth slips dramatically

IDC thinks that tablet growth will drop to 19.4% this year, compared to 51.6% in 2013. The firm now believes shipments will drop 3.6% to 260.9 million. Market saturation and a lack of meaningful innovation (IDC describes this as slower hardware iterations) will hurt tablet growth.

Android ASPs drop

The ASP (average selling price) drop for tablets helped Android unit demand grow, but the cost was high. ASPs dropped 18.3% in 2012, and another 14.6% in 2013.

These firms could face more pressure

Hewlett Packard (HPQ) is relying on cheap Android-based tablets (called “Slate”) to help stabilize its relevance in the consumer computing market. HP’s print app was included as a bundle in Google’s (GOOG) KitKat operating system update for Android. Slower growth in tablets may work in HP’s favor. HP PCs are a bigger percent of total sales, and consumers may opt to upgrade a PC instead of buying a tablet.

[Read more from Kapitall: Retail Comeback: Will These Retail Stocks Become Turnaround Stocks in 2014?]

Like HP, Microsoft (MSFT) could benefit if consumers opt to buy a PC powered by Microsoft Windows 8.1. Microsoft does not enjoy significant market share yet for Windows-based tablet. It is set to lower the price of Windows 8.1 for the less expensive devices.

Apple should be mostly immune to slowing tablet demand. Prices for iPad and iPad minis dropped, but profit margins are still strong. This is due to its customer base willingness to buy higher-end devices. 

Still, there are still risks for Apple as overall tablet demand slows. Apple’s tablets are all high-end, and the company relies on old versions to compete on the low-end. Low-end tablets will therefore be impacted from a saturated market.

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