Fierce competition in 7-inch tablet range is destroying profits

7-inch Tablet Competition

Apple was criticized by a number of pundits when it finally unveiled the iPad mini last November. While the device itself was well received by reviewers and consumers alike, some industry watchers felt Apple wasn’t doing enough to compete on price. Starting at $329, the iPad mini is far more expensive than devices like the Kindle Fire or Nexus 7. If Apple’s recent earnings beat showed us anything, however, it’s that squeezing as much profit as possible out of the iPad mini was definitely the right move — iPad sales hit a new March-quarter record in 2013 and margins were sustained enough to help deliver $9.5 billion in profit. Not everyone has adopted Apple’s strategy though, and a new report suggests the race to the bottom in the 7-inch tablet segment is squeezing profits across the board.

Beyond the money that Apple manages to rake in each quarter from iPad and iPhone sales, these devices have also spawned an accessory market worth an estimated $2.3 billion. Android tablet sales are finally starting to gain some serious momentum but despite the sales increase prompted by lower prices, Digitimes reports that accessory sales to consumers are sinking.

“Because the prices [of 10-inch Android tablets] are high, consumers tend to buy accessories such as covers to protect the products, and the profit margins on accessories are usually high,” Digitimes’ Jackie Chang wrote. “However, prices of 7-inch products are relatively low and distributors stated that consumers are less likely to purchase accessories to protect them. This has been eroding profits for distributors.”

Tightening margins for vendors… declining accessory sales that are eating into distributors’ profits… a potential new threat from a rumored lower-cost iPad mini or perhaps a cheaper previous-generation iPad mini once the sequel launches… the low-end tablet land grab is great for Google, though one can’t help but wonder how far vendors and distributors will go before they’ve finally gone too far.

Source:
Digitimes
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