The turning point in the consumer shift from personal computers to tablets will take place underneath Christmas trees and near the glow of menorah candles. Worldwide tablet shipments will surpass those of PCs for the first time during the fourth quarter, according to a new report by IDC, making holiday-season shopping something of the beginning of a gradual dethroning of desktops and laptops.
For the year as a whole, PC shipments will still outnumber tablets, and IDC projects that tablets will remain the worldwide underdog on an annual basis until the end of 2015. But during this shift, tablets will become the new PCs in more way than one, with a new computer format rising almost immediately to eat away at sales: big-screen smartphones. These so-called “phablets” will rapidly begin to lure people away from the lower end of the tablet market, slowing down growth in the industry. “The device world has seen several iterations of cannibalization impacting different categories, with the last few years focused on tablets cannibalizing PC sales,” says IDC’s Bob O’Donnell. “Over the next 12 to 18 months, however, we believe the larger smartphones … will start to eat into the smaller-size tablet market.”
At the same time, high-end smartphones will lose ground to cheaper, more basic smartphones, especially in developing markets. In the short term, the shift in consumption stands to benefit companies that do well in mobile devices at the expense of those that had made their names producing PCs—hence Microsoft’s (MSFT) purchase of Nokia and Michael Dell’s move to take his company private. But the relentless march to cheaper computing devices will mean a tighter future for device makers. IDC says the overall connected-device market, which includes PCs, tablets, and smartphones, will grow 27.8 percent year over year in 2013. But those shipments add up to only 10.6 percent more revenue for the industry. By 2017, IDC says revenue will grow only 3.1 percent and the price of an average device cost will fall to $323, down from $423 in 2012.
Of course, each tablet, phablet, and smartphone can serve as a conduit for digital-media consumption, putting companies that also control mobile operating systems in an enviable position. Primarily, this means Apple’s (AAPL) iOS and Google’s (GOOG) Android. The shift in hardware explains the intense focus on Apple releasing a less expensive version of its iPhone, the 5C, even as many observers registered surprised that the cheap version still costs so much. IDC expects phones priced higher than $400 to make up 28.1 percent of the overall market by 2017, down from 39.1 percent this year. But Apple priced its new, cheap 16GB phone at the equivalent of $735 in China, which the company expects to be its biggest market in years to come.