The low-end, mainstream tablet is the
new bright spot for the tech sector
 We expect 76% unit growth for 2012,
half from lower-priced tablets
 Hon Hai, Radiant, Simplo and Samsung
SDI (OW) are key beneficiaries
New low-end, mainstream segment. The iPad was
launched less than two years ago and already the tablet is
changing the tech landscape. We believe that we are in the
early days of another tablet revolution – whereby low-end
and mainstream users will be a game changer. Kindle Fire
has defined the success of the low-end segment as it was one
of the most popular gift items during the recent holiday
season; however, it has received fairly negative product
reviews. We believe Apple could cut the price of iPad 2 by
more than the typical USD100 at the widely expected iPad 3
launch in March, thereby opening up the tablet market to
another group of buyers with constrained budgets but
demanding better design to enable a fluid user experience.
Tablet market to exceed 100m units in 2012e. We raise our
global tablet shipment forecasts by 9% in 2011 and 6% in
2012. The tablet market could expand to 106m units in 2012
(up 76% y-o-y), better-than-consensus expectations of 80-
100m units. Tablets priced above USD400 could have a 50%
market share, versus 83% in 2011, while the low-end,
mainstream segment is the key growth driver. The tablet’s
cannibalisation impact on PC replacement has been largely
reflected in analyst expectations. As such, additional tablet
growth will now become value accretive for the overall sector.
Low-cost suppliers as key winners. Supply chains of
Apple, Google and Amazon are relative winners as their
powerful content ecosystem drives hardware sales. We
believe their low-cost assemblers and component suppliers
are the best way to play the bull case. As these tablets are
likely to use lower-grade, commodity components, we
suggest investors focus on industry leaders with a superior
cost structure that can support growth in a competitive
environment. We see Hon Hai, Samsung SDI, Simplo (all
OW) and Radiant OW(V) as likely beneficiaries. We raise
our 2012 profit estimate 6% for Hon Hai partly to reflect the
new trend (see our note OW: New tablet segment, new driver,
16 January 2012).