IDC: Cheap Is the Key as Tablets Overtake PCs

Smartphones will continue to drive shipments of connected devices, with a market share of 65.1% in 2013, rising to 70.5% by 2017, according to IDC. Tablet devices will claim a 2013 market share of 14.6%, rising to 16.5% by 2017. Desktop and laptop PCs combine to claim 20.2% of the 2013 market, but that number falls to 13% by 2017. Desktop shipments are forecast to fall by 8.4% to just 5% market share among connected devices.

An analyst at IDC cuts to the chase:

At a time when the smartphone and tablet markets are showing early signs of saturation, the emergence of lower-priced devices will be a game-changer. Introducing new handsets and tablet devices at cheaper price points along with special initiatives … will accelerate the upgrade cycle and expand the total addressable market overnight.

Did Apple Inc. (NASDAQ: AAPL) get into that game with its new iPhone 5C? Probably not, and for investors that is the biggest disappointment in the company’s new product announcement. The iPhone 5S offers some new whizbang features, but it does not change the market. The coming release of iOS 7 is the big news, and the new operating system will work on legacy iPhones. So who really needs a new iPhone?

The 5C is not cheap enough. At an unlocked price of $550, it is still too expensive for the emerging markets where smartphone penetration is expected to boom. A deal with China Mobile Ltd. (NYSE: CHL), the world’s largest wireless carrier with 750 million subscribers, may be in the works, but it is hard to believe that China Mobile will subsidize the iPhone enough to make it a huge seller in China. Cheap smartphones sell for less than $100 in the Middle Kingdom.

Tablets face their own competition from new smartphones with massive screens. These so-called phablets, with their five-inch and larger screens, are eating into the space carved out by the mini-tablets with screen sizes of seven to eight inches. IDC says that over the next 12 to 18 months, phablets — which are counted as smartphones, not tablets — will slow the growth rate for tablet devices.

IDC forecasts sales of connected devices to top 2 billion by the end of 2015 with a total market value of $735.1 billion. The total dollar value of the market also will grow more slowly because smartphones and tablets cost less than PCs. IDC believes the average selling price of a connected device will fall from $462 in 2012 to $323 by 2017.