(Source: intomobile)
Amazon's experiment appears to be a resounding success

Everyone knows that Apple Inc.'s (AAPL) iPad has been a critical sales success [1][2][3][4].  And most will recall that Google Inc.'s (GOOG) Android operating floundered in early 2011, growing slower than expected.

I. Kindle Fire Cools Off Red-Hot Apple

However, the IDC Group brings surprising news that Android is finally starting to do in the tablet space what it has done in the smartphone space -- gobble up Apple's market share.

Apple shipped 110.5 percent more tablets in Q4 2011 than in Q4 2010 -- 15.4m units, to be precise.  Still, its gleaming success was spoiled by Android newcomer, Inc. (AMZN), whose budget-friendly Kindle Fire exploded onto the scene.  Despite selling almost exclusively in the U.S., the Kindle Fire moved 4.7 million units in Q4 2011 -- almost a third of the volume of Apple.

The Kindle Fire was on fire in Q4 2012, moving a third the tablet volume of Apple.

It's not surprising to see a fresh face helping to carry Android to the top.  After all, Android's initial smartphone surge was led by HTC Corp. (TPE:2498), a company that rose from obscurity to become a household name.  Still, the story in the tablet space is a bit different.

Whereas HTC grabbed its piece of the smartphone market by beating Apple hardware-wise in many ways, with high-end handsets, Amazon's approach has been the opposite.  It debuted a 7-inch tablet at the very low price of $199 USD.

The launch of the 7-inch Kindle Fire was seen as a gamble.  Amazon crafted its own custom branch of Android for the tablet, a move that could easily have backfired.  However, the device was buoyed by its strong hardware sheet for its price, with a Texas Instruments, Inc. (TXN) 1.0 GHz OMAP 4 4430 dual-core CPU and a sporty PowerVR SGX540 GPU from Imagination Technologies Plc. (LON:IMG).  While not exactly Earth-shattering from a price agnostic perspective, for a sub-$200 device, that's a pretty mean hardware spec.

[Note: There's likely to be some debate over whether the heavily modified Kindle Fire branch of Android is truly Android, given that Google does not directly maintain it.  However, given the amount of code exchange between Google and its open source partners and Amazon, a fair argument could be made that the IDC's labelling is accurate -- from a certain perspective, at least.  That said, Google doesn't count it in its activated device totals and Amazon does not use the word "Android" in its marketing language, other than to call its App Store "App Store for Android".]

Of course, that also means that Amazon's profit margin on the device was likely almost nonexistent, versus Apple's posh margin, which reaches hundreds of dollars per device.  If you combined market share with profitability Apple's effective market share would like rise to over 95 percent.  In other words, Android may be outgrowing it, but it's still making a killing.

II. Android on the Rise

In Q4 2011 Android soared from 32.3 percent of the market to 44.6 percent of the market, driving Apple down from 61.6 percent of the market to 54.7 percent of the market.  Meanwhile, Canada's Research in Motion, Ltd. (TSE:RIM) saw sales of its PlayBook tablet take an even deeper turn for the worse, with its market share collapsing from 1.1 to 0.7 percent.  RIM recently effectively fired its long-time co-CEOs for poor performance.  And Hewlett Packard, Comp. (HPQ) -- a solid second place after its TouchPad webOS tablet clearance -- completed its planned abandonment of the tablet market, dropping to 0 percent of sales.

webOS is dead
webOS tablet sales = dead, after HP abandoned lucrative market. [Image Source: Gigaom]

Android's gains came almost exclusively on the back of the Kindle Fire.  Outside of the Fire, the only other major Android tablet maker to see growth was Samsung Electronics Comp., Ltd. (KS:005930) who managed an anemic push from 5.5 to 5.8 percent.  The picture was not great for Samsung, the world's largest Android smartphone maker.  Sales of the Galaxy Tab lineup were slightly affected globally by Apple's international lawsuit campaign that led to temporary sales bans in some regions [1][2].  However, most buyers overall just didn't seem that interested in the Tabs, versus their fascination with the budget Amazon Android.  

Samsung Galaxy Tab 10.1
The Samsung Galaxy Tab family saw anemic sales growth in Q4 [Images Source: 9to5Google]

Barnes & Noble Inc. (BKS) -- another budget Android tablet-maker -- actually fell in market share, failing to capture the same spark of the Kindle Fire.  Its Nook tablet did not fare well in holiday sales, priced at $250.  The decline prompted Barnes & Noble to cut the price of its Nook to $199 USD this month.

Tom Mainelli, research director, Mobile Connected Devices states, "As the sole vendor shipping iOS products, Apple will remain dominant in terms of worldwide vendor unit shipments.  However, the sheer number of vendors shipping low-priced, Android-based tablets means that Google's OS will overtake Apple's in terms of worldwide market share by 2015. We expect iOS to remain the revenue market share leader through the end of our 2016 forecast period and beyond."

The IDC Group is now predicting Android to pass iOS in tablet market share by 2015.  

IDC tablet predictions
The IDC thinks Android tablets will pass the iPad in 2015. [Image Source: IDC]

The firm's charts completely dismiss the major new player that will be coming to the market later this year -- tablets powered by Microsoft Corp.'s (MSFT) Windows 8.  The IDC does not even mention Windows 8 tablets or give any reasoning for the seeming snub.

III. e-Reader Shipments Also Get Bump 

Overall tablets finished 2011 on a high note.  Worldwide sales were estimated to be 28.2m units -- up 56.1 percent from Q3 2011 and 155 percent from Q4 2010.  The surge helped push 2011 tablet shipments to 68.7m units and inspired the IDC Group to increase their 2012 estimate from 87.7m units to 106.1m units.

e-Paper readers also saw a surprising holiday surge -- another win for Amazon.  Kobo, Inc. (a subsidiary of Rakuten, Inc. (TYO:8842)) and Barnes & Noble also were top performers in this segment.  Unit sales rose to 10.7m units, up 64.3 percent from 6.5m units in Q3 2011, and up 64.6 percent on a year-over-year basis. The IDC Group expects sustained growth in 2012, fueled by international markets.

Kindle on the beach
Kindle e-Readers sold well in Q4 2011, just like their Android "big brother".
[Image Source: Amazon]

Amazon should relish its victories, but it must also refocus itself for a tough fight in 2012.  Apple's iPad 3 is shaping up to be a sales monster.  At this point Apple's biggest problem appears to be that it can't produce enough of the devices to keep up with demand.

Source: IDC Group [press release]

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