Barclays Capital said it continues to believe the new tablet category (led by Apple Inc.'s iPad) is poised for rapid growth over the coming years.

Tablets are entering the enterprise through a multitude of use cases in verticals such as pharma (prescription, case data), banking (presentations), industrials, hotels, etc.

In a conference call, Barclays Capital and Forrester Research analyst Ted Schadler discussed the topic of the iPad in the Enterprise: Opportunities and Challenges.

Forrester Research believes that tablets will come in through the employee door, just like smartphones. Forrester believes the growth in tablets will be huge driven by rapid product cycles, subsidies and desire.

According to Forrester forecasts, tablets are expected to reach 82 million US consumers by 2015 with about half used for work.

Forrester believes that tablets could exist as a third device – not replacing a smartphone or laptop -- at least over the next two years. In Barclays Capital's opinion, the tablet delays a laptop purchase in many cases and extends the upgrade cycle.

Apple -- Winner in the Consumerization of IT

We continue to view Apple as the clear beneficiary in our sector of paradigm shift in computing toward mobile devices with the iPad and the iPhone. We believe consumers are increasingly buying more laptops, tablets and handheld devices and 'logging in' to apps and corporate networks, said Ben Reitzes, an analyst at Barclays Capital.

Reitzes said this trend should mean that the key to corporate success over the long term is being strong in consumer devices that you use everyday. As a result, the purchase pattern is shifting toward laptops, tablets and smart phones being bought by consumers (all key areas of Apple’s strength), while direct sales of corporate products have shorter and smaller upgrade cycles.

Reitzes said he calls this trend the “Consumerization of IT,” which benefits companies with strong consumer appeal and customer service reputations. The rise of ultra-mobile and low power devices has also put more emphasis on design, brand and innovation.

Reitzes believes Apple has a large lead in terms of driving this trend, while it presents challenges for traditional PC vendors, in his opinion. Reitzes believes the iPad’s success in the enterprise will help Apple make further inroads into the corporate market with other products eventually.

iPad Far Ahead of Competition But Others Still Have Opportunity

Reitzes said Apple is currently running far ahead of its tablet competition and its their game to lose given strength of retail distribution, cohesive ecosystem, large app base (350,000+ apps including 60,000+ native to iPad; over 10 billion app downloads) and huge retail presence.

Forrester Research believes that Apple will win but not sweep the tablet market. Reitzes believes and Forrester agrees that the iPad’s share is likely to fall somewhere between the iPhone’s share of about 20 percent and iPod share of about 70 percent. In BarCap PC and Tablet forecast model, Reitzes estimates the iPad will stay somewhere in the 60 percent unit share range through 2014.

While Apple is clearly dominant, Forrester Research believes there is opportunity for others, namely Android and Research In Motion (RIM) given its IT foothold. RIM is that they already have an enterprise buyer today and IT is very interested in the PlayBook. The key for RIM is if employees will be satisified with the experience; although the current tethering requirement could prove to be a hindrance.

Currently the PlayBook needs to sit within a few feet of your Blackberry in order to get access to enterprise email/security/support. Forrester Research believes RIM may need to back away from that requirement if it backfires.

According to Schadler, overall success from other players is not likely to come from product differentiation, but is more likely to come from execution in the market, the breadth of apps available, retail distribution, and price. If competitors are unable to beat/meet Apple on price it just won’t work.

Apple has done a good job of locking up the supply chain to help keep its lead in the tablet market. Note that Schadler does not think you will see carrier subsidies reach the level Reitzes currently sees in the smartphone market -- although that is generally more of a consumer and not corporate issue.

While the company hasn't set up an enterprise salesforce, Apple has been listening and adapting to enterprise customers. It is very hard to separate consumer from corporate units given more and more employees are buying devices and bringing them into work in the Consumerization of IT era. Forrester believes that tablets could exist as a third device -- not replacing a smartphone or laptop -- but it does delay laptop replacements.

We continue to view Apple as the clear beneficiary in our sector of the paradigm shift in computing toward mobile devices with the iPad and the iPhone. We believe Apple has a large lead in terms of driving this trend, while it presents challenges for traditional PC vendors, in our opinion. We believe the iPad's success in the enterprise will help Apple make further inroads into the corporate market with other products eventually, as well, said Reitzes.

Tablet Shipment

While the market was dominated by the iPad in 2010, a dozen vendors are expected to rollout tablets starting in late calendar first quarter through calendar second quarter at a rapid pace. For calendar 2011 Reitzes recently raised his tablet unit shipment estimates to 47 million (was 38 million) including 33.7 million iPad units (was 22.5 million pre-Apple earnings).

Reitzes said his calendar 2011 estimate includes 6.55 million tablets to ship in calendar first quarter, including 5.1 million iPads and 1.4 million others. While Reitzes' 2011 estimates are below that of other industry research firms and could prove conservative -- a lot will depend on how quick vendors actually launch and ship products -- some of which have already been delayed multiple quarters.

In addition, with the iPad 2 expected to be announced this quarter and shipping by April, Reitzes wouldn’t be surprised to see competitors hold off launches until second half of 2011 for the back to school/holiday buying seasons.

For calendar 2012 Reitzes' tablet forecast increases to 70 million (was 57 million) including 42 million iPads (was 30 million). Note that 70 million is not a small number considering it is equal to 18 percent of total PC units.

Little Visibility into Success of Non Apple Vendors

Most, if not all, of the handset vendors will have entered the tablet market by the end of 2011. Visibility on success, however, is low for all. Only Samsung has launched thus far with the Galaxy Tab. Reitzes considers the device underpowered -- and believes it has sold like an underpowered device as well. Samsung cited approximately 2 million sales in units with sale through modestly lower.

Motorola Mobility Holdings Inc. intends to offer the highest powered Android tablet, the Xoom, later this month. It will be the first commercial tablet based on Google Inc.'s Android 3.0 Honeycomb. It will not support 4G initially and early reports indicate a lofty $800 price tag.

RIM's Playbook is a WiFi only (for now) 7-inch tablet targeting enterprise customers. It is due in March. The Playbook will not initially offer a cellular modem. However, Sprint announced at CES a WiMAX 4G version by second quarter. Both the Playbook and Xoom appear credible technically, however, visibility on ultimate end demand remains limited.

Reitzes does expect Motorola Mobility to make a push within the enterprise with the Xoom given initial success of its Droid platform and Droid Pro in particular within the enterprise arena.

Nokia Corp. has not announced a tablet, although they have participated in this market before and thus Reitzes expects them to return in second half of 2011. The list of insurgent vendors is of course much longer than this for now including HTC and LG, although Reitzes does expect some the vendor roster to become much more slender over time.

We estimate a tablet market of 47 million in 2011, of which Apple should capture roughly 72 percent of the market. We have little visibility at present into the composition of the 13 million units we have ascribed to Other in 2011, said Reitzes.

Reitzes said he has tentatively forecasted 2 million tablets for Motorola Mobility based on modest sell through of the Galaxy Tab. This places Motorola Mobility's share at a modest 4 percent in 2011. Reitzes has also estimated 3 million for Blackberry maker RIM, which equates to about 5 percent of RIM's installed base of 60 million users. This places RIM’s share at about 6 percent for 2011.

We do not have any tablets in our models for Nokia Corp. or Sony Ericsson. All we can say with certainty is that the vendors themselves - and likely in some cases their carrier partners - are likely to aggressively support the launches, said Reitzes.

Reitzes believes the market will prove sufficiently broad for non Apple vendors to find niches. Those niches may include the size of the screen, the price of the device, or a particular market such as enterprise or government.

China Import Tariff Cut Could Help iPads

China's Ministry of Finance recently announced it would lower the import tariff to 10 percent from the original 20 percent on IT products, which include computers, storage devices and digital cameras, as well as their peripherals, parts and accessories. The new tariff has been in effect since January 27, 2011.

According to various Chinese media (such as the China Daily), the import tariff on iPads had been set at 1,000 Chinese yuan ($152), so a 16-gigabyte iPad was about $150 more expensive in China than in the United States. However, with the new import tariff change, the duty on an iPad will be reduced from 1,000 Chinese yuan to 500 Chinese yuan, narrowing the price gap between iPads in China and other regions.

The iPad has been ramping sales quickly and we believe that this news only helps expansion in China. One of the things that is interesting about Apple is that it is a megacap that has barely tapped into the China opportunity, and we see significant growth ahead, said Reitzes.

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