Smaller Tablets Are the Bigger Investment for 2013

The tablet market is already red-hot and poised for more growth, but it's smaller tablets that are likely to grow in popularity this year. Investors interested in in mobile tech should take note of this trend.

Smaller is the new bigger
The shift from desktop to mobile has been clear for quite a while now, and many predict that this is the year global installed base units of mobile devices will outnumber desktop computers.

Source: KPCB.

In the tablet space, Apple and Android rule the roost, and Microsoft's Windows 8 tablet OS trails far behind. Just a mere two years ago, Apple was riding the tablet market share like a show pony, with a whopping 90% market share, but over the past three years Apple's share has slipped to 43.6% because of Android's dizzying worldwide expansion.

The Android-based device market share breaks down as follows:

Source: Localytics.'s Kindle dominates the Android market, with the Barnes & Noble's Nook following in a distant second, Samsung's Galaxy in third, and Google's Nexus nabbing the fourth spot.

Apple's market wasn't just stolen away by the prevalence of Android tablets, but also by the cheaper and smaller offerings of those Android devices. Some believe tablets like the Nexus 7 and Kindle Fire forced Apple to enter the smaller tablet game months ago -- a move that helped save Apple's small tablet future.

A report by DisplaySearch showed that shipments of 9.7-inch tablets (original iPad size) fell by more than 6 million from December 2012 to January 2013. At the same time, small tablets measuring 7- to 9-inches increased from 12 million to 14 million. Last year, 160 million tablets were shipped worldwide and that number is estimated to increase to a whopping 254 million this year. The chart below shows tablet sales from last year and projected sales for this year, along with 2013 estimates for small versus large tablet shipments.

Source: DisplaySearch.

It's a small world
If the shift to smaller tablets comes true -- and it the current trends suggest that it will ­-- then investors need to look at which companies are in the position to ride this small tablet wave all the way to the shore. In 2011, about 17 million small tablets were shipped, and that number spiked to 34 million in 2012. Apple was originally expected to sell 60 million iPads in 2013 and 40 million iPad Minis, but some have estimated the numbers to be more like 55 million Minis and 33 million iPads.

A report by Forrester last year said that one-third of Americans will have a tablet by 2016. It now seems that many of those tablets are likely to be smaller ones.

With Apple well into the small tablet market now, its prospects for future market share look good. By 2016, IDC estimates that Apple will have 49.7% tablet market share, Android will take 39.7%, and Microsoft's Windows OS will grab 10.3%.

Although Apple is always more concerned with profit margins than market share, investors need to keep an eye on Apple's iPad Mini to see if the tablet can help the company reclaim some of its old tablet territory. With so many Android devices on the market, and at every price point, Apple can't afford to be pushed around in the high-end small tablet space.

Though Apple has brought huge rewards for longtime investors, many are wondering whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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