iPad, Android Will Spur Tablet Market to 125M Units

Apple's iPad and Google's Android tablets will continue to pace the slate market in 2012, with an assist from Microsoft Windows 8, said Jefferies & Co.

Tablet shipments could top 125 million units in 2012, led by Apple's (NASDAQ:AAPL) iPad and tablets based on Google's (NASDAQ:GOOG) Android and Microsoft's (NASDAQ:MSFT) Windows 8 operating systems.

So goes the prognostication from equity analysts at Jefferies & Co., which actually shaved off 25 million units from its earlier estimate for this year because the market consolidated faster than it expected.

Moreover, carrier tablet subsidies never materialized in 2011. Carriers such as Verizon Wireless and AT&T simply chose not to aggressively market their Android tablet offerings, impinging unit sales.

Jefferies analyst Peter Misek said Apple sold 40.5 million of the 70 million tablets that shipped in 2011, with Samsung shipping 10 million Galaxy Tabs and Amazon (NASDAQ:AMZN) selling 4 million Kindle Fire Android tablets for the year.

With the Kindle Fire and some Tab models being the exceptions, much of the Android tablet market suffered from built-in anemia.

Most of the machines were initially priced too high compared with the iPad, which started at $500 for the WiFi model. Motorola Mobility (NYSE:MMI) sold its Xoom Android Honeycomb tablet for $699 on contract a year ago this month.

That price, some bugs in Honeycomb, and the lack of a strong application ecosystem for Android slates led to Motorola only selling 1 million tablets for 2011. For perspective, Apple sold 15.4 million iPads last quarter alone.

The Kindle Fire came to market Nov. 15 with the opposite approach: It was WiFi-only and cost $199. These factors made the tablet quite attractive to cost-conscious consumers. Over 4 quarters, the Fire could conceivably sell 16 to 24 million units.

Good news then, from Misek, who said Android tablet apps should drive shipments in 2012.

Still, Misek had originally modeled the 2012 tablet market to top 150 million units shipped. He's curbed his model to account for market consolidation. Specifically, tablet vendors, including Research In Motion (NASDAQ:RIMM), HP (NYSE:HPQ) and other Android OEMs, failed to gain any traction against Apple, Samsung and Amazon.

Motorola, HTC, RIM and HP all slashed prices, often quite aggressively, to sell off inventory and grab some market share.

If there is a silver lining here, it is that the tablet market is a lot younger than the steadily maturing smartphone sector. Misek believes Android will have "a more seamless offering across handsets and tablets," likely owing to the merging of the smartphone and Honeycomb branches into the Android 4.0 Ice Cream Sandwich operating system.

Of course, the iPad juggernaut should continue in 2012 with the iPad 3, expected to launch in the first quarter. When the iPad 3 becomes available, it is widely expected Apple will follow the pattern it set for its iPhones by discounting the iPad and iPad 2. With Apple setting the bar and market expectations, Misek expects tablet prices to fall to an average of $350.

The market may be dominated by iPad with an assist from Android in the near future, but Microsoft will make a "viable push with its Windows 8-based tablets," Misek wrote in a Feb. 6 note to clients. "The first ones are likely to launch in late 2012, but the units will likely not significantly ramp until 2013."