Lexmark

Merrill Lynch calls 2012 'the year of the tablet shakeout'

December 14, 2011: 10:05 AM ET

Bank of America's brokerage division picks winners and losers for the year ahead

Click to enlarge.

The tablet market is "still in its infancy," writes Merrill Lynch's Scott Craig in a note to clients Wednesday, with "years of solid growth ahead."

But that growth is not evenly distributed, and in his report Craig and his colleagues single out seven winners and seven losers.

The winners: (I quote)

  • Amazon (AMZN): We expect strong sales of the Kindle Fire (4-5mn in 4Q) to better position Amazon as media sales transition to digital, resulting in potential stronger media segment growth. We also anticipate that some Kindle Fire users become Prime subscribers, resulting in increased overall purchase frequency on Amazon.
  • Apple (AAPL): With ~60% unit share, ~70%+ revenue share, and even greater share on a profit basis, we expect Apple to remain a dominant force in the tablet market. We continue to think Apple's success with closely integrating hardware with software (iOS) and media content (iTunes, AppStore, and iCloud) is difficult to replicate.
  • Corning (GLW): Corning's Gorilla Glass has become the cover glass of choice for both high and low end tablets. Its total available market increases as new tablets are introduced into the market. We like Corning's dominant market position in Tablet cover glass where the only known competitor (Asahi Glass's Dragontail offering) is a distant second.
  • Qualcomm (QCOM): Qualcomm is likely to emerge as a winner in tablet market by virtue of its broad portfolio of chipsets, connectivity and eventually apps processor. Qualcomm's roadmap looks attractive for the next 2 years and we think the 200+ tablet designs will drive significant share gain for the company.
  • Samsung (SSNLF): Samsung will likely be the winner not only as a tablet maker with its own tablet Galaxy Tab series but also as a key supplier of the components like mobile DRAM, NAND, and LCD/OLED. Such synergies across hardware and components should continuously contribute to Samsung's strong top-line growth and profitability.
  • Sharp (SHCAF): We expect Sharp to be the major panel supplier for the new-coming iPad with a differentiated technology called IGZO. Since it currently does not supply panels for iPad2, the contribution of the IGZO panel sales for the coming iPad to the company's profitability should be significant in FY3/13.
  • Texas Instruments (TXN): With 5 chips (Wi-Fi, OMAP processor, Power Mgmt, Transmitter, speaker, transceiver) in the new Kindle Fire, TI has a $600mn ($30 content/unit x 20mn est. units) tablet opportunity in 2012, with upside from content in Barnes and Noble Nook color tablet. Meanwhile, improving macro could drive fab utilization and gross margins back towards ~55% from 50% today.

Below the fold: The losers.

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