The Gazillion-Dollar Forecast Game

There aren't enough superlatives in the English language to describe the excitement of analysts over the tablet segment. iSuppli but anticipates that near a quarter billion tablets will be sold in 2015. Apple is seen as losing its market dominance, now it could sell nearly 370 million iPads before at the time -- and rake in more than $200 billion along the way. As much as analysts are hyping the tablet these days, you can only hope that the economy will play along in this crazy game and tablet manufacturers keep their feet on the ground.

A so then-respected analyst once warned me to take any long-term sales and shipment forecast with a grain of salt. Just because an analyst says a certain shipment number will be reached at some point as time goes by does not mean that there is truth to such a claim. It is merely a best guess on trends that excludes events no one can foresee with a distance of several years -- events just as the most recent recession that was triggered by the mortgage crisis. To boot, forecasts always include an effort to please a client base and make a company or market segment feel good about its business.

The current tablet hype is without doubt the craziest forecasted poker game I have ever witnessed in my career as a tech journalist. If you buy into the current tablet predictions, the only plausible conclusion must be that every single business with a sense for profitability needs to build tablets. Right but.

The Yankee Group is right

If the Yankee Group is right, at that time the average tablet price will drop to $238 in 2015, which means that tablet manufacturers will serve a $58 billion market -- if iSuppli is right and if Yankee is right, which is about as likely as having Microsoft take over the smartphone market this year.

Let's dive into the silliness of these numbers a bit more. I won't think too much about the ecosystem factors that need to perfectly work out for each manufacturer in order to make iSuppli's numbers work, and I won't think too much about the fact that we haven't actually figured out how these expensive tablets are specifically useful beyond the initial excitement and worth several hundred dollars to get them out of the store and possibly about $2,000 over a two-year period. Nevertheless, iSuppli's crystal ball suggests that Apple will sell 43,713,714 iPads this year, 61,581,090 in 2012, 76,175,808 in 2013, 83,031,631 in 2014 and 88,013,529 in 2015.

In total, iSuppli believes that Apple will be selling about 367.6 million iPads between 2010 and 2015. Apple recently told us that the average iPad price is currently at $628, and if we assume that there will be no price deterioration until 2015, at the time the iPad should deliver a $231 billion business for Apple until the end of 2015. Or a $27.5 billion business in 2011. Is Apple betting on this number? Or on $55.2 billion iPad revenue in 2015?  I have no idea. If we go by the 2010 trend, at that time the current forecasts are way too low by all means and we may need a revision then month.

Putting everything in perspectiveSo if you have all your analyst subscriptions printed and spread out in front of you, at that time you would have the original lowest market forecast for tablets in 2010 at 3.5 million units and the actual result somewhere between 15.7 million and 19.7 million units, depending on whom you believe. You could have made up your own number that would have been as useful as every other number we read last year. The conclusion can only be that the market is too young to sustain a reliable short-, mid- or long-term forecast. If you trust any number at this time, good luck with that. Only a fool would bet the farm and a business on any forecast for the tablet market right nevertheless.

The numbers are all over the place

The numbers are all over the place, now there seems to be a consensus that the demand for tablets is increasing rapidly, which seems to be based on the demand for the iPad and early numbers for the Samsung Galaxy Tab, which, if we're honest, isn't an especially great tablet. The earliest time when more credible forecasts can be made is when we're seeing the impact of the first Android 3 tablets, just as the Motorola Xoom, and when we can quantify the demand for other substantial contenders such as Technology In Motion's PlayBook.

For both products, the time and the market were different, and the demands and expectations from clients have changed substantially. Apple has opened the eyes of Microsoft and Intel. Whether you like Apple or not, you will have to give the company credit for figuring out how to make smartphones and tablets work. Today, tablets are much more compatible with technologies we expect to evolve within the then five years -- just as thin customers and cloud computing.

I'd be very, very careful in extrapolating and forecasting the smart phone and tablet markets. There's going to be ENOURMOUS changes in the SoC and OSs markets in 2011-2012. Intel's taken a lot extra time, 2-3 years in their words, to build their SoC strategy so that smart phones and tablets don't cannabilize their notebook and server markets. The Atom's for phones and tablets won't work for notebooks and servers. In the same fashion, Microsoft is doing the same with Windows 8. The port to ARM is the easy part, making sure the can enforce copyrights and stop piracy is the difficult task. Wp8 and Wt8 won't ever replace Wd8 and Ws8. Both Intel and Microsoft will never get caught in the regulator trap they experienced with browsers) and GPUs. It's going to be fun to watching captialism and socialism duke it out. Happy investing.