Technology

The Trouble With Tablets? Customers Only Buy One (or None)


The Trouble With Tablets? Customers Only Buy One (or None)

Photograph by Simon Dawson/Bloomberg

Two things in tech that have seemed ascendant in recent years now appear increasingly vulnerable: Samsung and the tablet market.

Stagnating smartphone sales are the major concern for Samsung Electronics (005930:KS) amid an earnings report on Thursday that featured the lowest quarterly profit since 2012. But the company’s tablet business also slowed, selling only about 8 million units in the quarter. According to market researcher IDC, Samsung’s share of the tablet market has shrunk over the past year.

But this isn’t just a case of Samsung losing out to the competition. Apple (AAPL) is also having trouble selling its iPads. Corning (GLW), which makes glass tablet screens, said this week that it had vastly overestimated the tablet market and revised its forecasts downward significantly; the company now says the overall media tablet market will grow 8 percent to 10 percent this year, and that most of that growth will come from low-end, unbranded tablets. The high end of the tablet market has spent the last year losing out to low-end media players, according to IDC. Some people might not even classify these cheap products as tablets at all.

It wasn’t that long ago that tablets were supposed to change everything. So what’s going on? Samsung executives told investors that its tablets haven’t caught on in emerging markets the way smartphones did. And people who have already purchased the devices are happy enough, with no need to go back to stores to buy newer models.

Best Buy (BBY) Chief Executive Officer Hubert Joly echoed this sentiment in an interview with Re/code, warning that tablet sales at the retail chain are crashing. “The level of innovation in the past year has not been as great as it had been in the previous two years,” he said. “So, there again, the jury’s out in terms of what’s going to happen, because it’s going to depend on what innovation comes to market. But you need a reason to replace.”

Apple and Samsung have done a good job of perpetual innovation with smartphones. People pretty steadily trade up their phones every two years, tempted by more powerful devices and nifty features—fingerprint scanners, waterproof casing—and trained into a rhythm by phone carrier subsidies that give financial incentives to those who upgrade. The phone companies have been so effective at this that many people wonder whether there’s some nefarious plan at play.

Expecting a similar pattern for tablets was logical. It just hasn’t worked out that way. Instead of trying to persuade people to buy tablets more often, both Samsung and Apple have a similar plan to find new customers: Get their employers to pay for their devices. Samsung says more powerful chipsets will make tablets function more like personal computers, allowing them to run sophisticated productivity software. It’s planning on putting more emphasis on enterprise sales. A recent deal between Apple and IBM (IBM) is also intended to win over businesspeople.

Samsung gets hurt in more ways than one if the market continues to struggle. It’s selling fewer tablets but also says its business of making screens for tablets is doing worse than it expected. The company now sees its display business shrinking next quarter.

Corning is also paying for being, by its own admission, “really wrong” about the tablet market. James Flaws, the company’s chief financial officer, told investors that its business making durable screens for smartphones is still chugging along. But that isn’t as good as a second tablet boom would be for a company selling screens by the square foot: “One reminder,” Flaws said. “Smartphones are much smaller than tablets.”

Brustein is a writer for Businessweek.com in New York.

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Companies Mentioned

  • 005930:KS
    (Samsung Electronics Co Ltd)
    • $1206000.0 KRW
    • 6000.00
    • 0.5%
  • AAPL
    (Apple Inc)
    • $100.86 USD
    • -0.77
    • -0.76%
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