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Tablets to Cannibalize Half of PC Purchases in 2011

More than half of U.S. consumers who plan to buy an iPad or another kind of tablet this year said in a survey that their purchase would be in place of a traditional desktop, laptop or netbook computer. Just one year after the first mainstream tablet was released, this adoption rate would make the tablet one of the most rapid revolutions ever seen in consumer electronics.

The shocking 55 percent PC cannibalization rate was discovered in a survey of 2,500 U.S. consumers conducted for ISI Group by the NPD Group, two widely respected research firms on Wall Street. The remaining 45 percent said the tablet purchase would be “incremental.”

“Over time, we expect tablet computers to be classified as a mainstream PC especially as their functionality grows and converges with other computers,” said Abhey Lamba, lead technology analyst at ISI Group, in a note. “We expect the release of Windows based tablets to be a catalyst for the convergence as those tablets are likely to be similar to traditional computers versus a purely consumption oriented device like the iPad.”

The Samsung Galaxy, which runs on Google’s Android software, is already out. But Research In Motion , Motorola , Vizio and many others are all expected to put out tablet computers this year. Many will be unveiled at this week’s Consumer Electronics Show in Las Vegas.

“When you look at tablets versus a PC or laptop, they have three things that the American consumer loves: portability, efficiency and convenience,” said Joe Terranova, chief market strategist for Virtus Investment Partners and a ‘Fast Money’ trader.

To be sure, Apple will still be clearly atop the tablet heap with 75 percent of those surveyed by NPD saying they would go with the iPad. Last year, the Apple device was the most rapidly adopted consumer electronics device ever, beating out even the DVD player, as revenue in its first quarter on the market exceeded $1 billion.

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It’s this hold as the market share leader in this expanding market that drove ISI’s Lamba to predict a 24 percent surge in Apple over the next 12 months. His $400 price target is based on 2012 earnings estimates that give the company a paltry forward P/E ratio of 14 times earnings.

ISI estimates that 50 million tablets overall will ship in 2011 and then shipments will nearly double to 92 million in 2012.

“It would seem this will create a natural need for portable printers,” points out JJ Kinahan, chief derivatives strategist at TD Ameritrade’s Thinkorswim. “Lexmark and Hewlett-Packard produce quite a few that get great reviews.”

ISI’s Lamba estimates that the worldwide tablet cannibalization rate of PCs will be a much lower 30 percent, mainly because America’s market is already saturated with computers whereas many consumers in emerging markets will be buying a computer for the first time.

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