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Is the iPad Set for a Holiday Blowout or Blowup?

Sunday - 12/30/2012, 3:30am  ET

Christmas is over, and that means one thing for Apple  investors: weeks of contrasting takes on whether the company is set to beat its hefty expectations of $55 billion in sales this holiday quarter. You can expect the usual slate of "supply chain leaks" and research firms all looking for any clues into Apple's performance. Let's look at some of the news across the past week and then weigh in on whether investors should pay attention to these reports or dismiss them as mere noise.

A Flurry of smartphone sales?
Web traffic provides an easy way to get nearly instantaneous feedback on device sales. As smartphone and tablet users fire up their new devices and hit the Web, companies that monitor Web traffic are easily able to tell the operating systems from which traffic is coming from. This methodology isn't perfect by any means -- as an example, iOS users on average surf the Web far more than their Android counterparts do -- but it can lead to an early glance at holiday sales.

Smartphone sales could reach 700 million this year.

Researcher Flurry has more than 260,000 apps using its analytics package, which the company says allows it to track 90% of all new activated iOS and Android devices. It's a company with a pretty unique view into the smartphone and tablet market, so I always place an emphasis on its findings over unverified "supply chain leaks" that are common with Apple and other smartphone companies. 

On Christmas day this year, Flurry found an impressive 155% gain in iOS and Android activations compared with last year. In total, the company counted 17.4 million activations, which was far ahead of last year's 6.8 million on Christmas day. As a confirmation of the accuracy of its device activations number, the company also measured a 112% increase in new iOS and Android app downloads on Christmas Day. 

Will the iPad steal Christmas Day?
Yet as impressive as total Christmas activations were, the impressive part was the jump in tablets being activated on Christmas Day. The following image from Flurry shows the popularity of tablets as Christmas gifts.

Source: Flurry Analytics.

For every four smartphones activated Dec. 1-20, only one tablet was activated. That number approximately jibes with estimates from other researchers. IDC has approximated about 122 million tablet sales this year, while smartphones should come in at about 700 million. That puts tablets at about 15% of all mobile sales this year. 

Yet on Christmas, tablets actually overtook smartphone sales. A surge in tablets should be expected. Phones are everyday items activated throughout the year, while tablets lend themselves more to gift-giving. Yet 51% of Flurry's tracked 17.4 million activations implies that at least 8.9 million tablets were unwrapped on Christmas Day. That would constitute 7% of expected tablet sales in a single day. 

Last quarter, the iPad pulled in about 50% of shipments, according to researcher IDC. 

There are two important caveats to this data:

1. IDC's numbers are shipments. Shipments can differ from total end sales if tablets aren't moving off store shelves. Samsung's 18% market share looks especially suspicious to me.

2. This data was from the third quarter, a quarter in which Google's Nexus 7 (seen via Asus, which manufactures the Nexus 7, on the preceding chart) and Amazon.com's Kindle Fire launched. Not only that, but tablet buyers also waited on the widely reported launch of the iPad Mini, which came in October. 

Add those two facts up, and I believe Christmas Day activations would skew more heavily than 50% toward the iPad. Assuming 60% of activations were iPad and iPad Mini activations, that implies that a whopping 5.3 million iPads were activated on Christmas Day. Flurry also noted a particularly strong holiday for the Kindle Fire, indicating that Amazon is managing to beat its low-end Android competition. 

Reasons for iPad fear?
Flurry's data runs in stark contrast to reports out of DIGITIMES, a company that frequently cites supply chain sources on ramping capacity, order cuts, and constraints that could point to better- or weaker-than-expected sales of popular devices. 

The report of the week from DIGITIMES was that iPad Mini shipments might total only 8 million units because of insufficient yields on the device's display. The paper notes that shipments are likely to increase to 13 million in the first quarter of next year, but that wasn't enough to remove the sting of weak holiday sales. Eight million iPad Minis in the holiday quarter would be well below expectations, and on the day of the DIGITIMES report, Apple sold off 1.4%.

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