Report: White-Box Tablet Market Thriving

The cheapest tablet market may be young, but white-box tablets have already grown into a substantial part of the market.

According to a recent report from NPD DisplaySearch, white-box tablets now account for one-third of the global tablet market. The research firm, which forecasts 2013 tablet shipments to increase 67 percent year-over-year to reach 256.5 million units, said custom tablets will maintain that one-third market share level for the next several years.

But there's a catch -- much of that white-box tablet growth is coming from overseas, NPD said.

"The rapid rise and establishment of white-box tablet PCs (tablets made by small local brands, mainly in China) is putting pressure on traditional notebook PCs," said Richard Shim, senior analyst with NPD DisplaySearch, in a press statement. "These low-cost 8 inch tablet are reaching further into emerging regions where notebook PC penetration rates have remained low, resulting in cannibalization by tablet PCs."

[Related: Android Tablets Gain Ground On Apple iPad In 1Q]

While white-box tablet growth has spiked in China and emerging markets in Latin America, it hasn't yet blossomed in North America. Jeff Davis, senior vice president of sales at D&H Distributing, said that while the distributor's tablet sales tripled in its last fiscal year, thanks to strong Android device sales, D&H hasn't seen tablet components for white-box devices take off yet.dfsWF2FR

Android has also become popular in the white-box market. In a recent report on first-quarter tablet shipments, Strategy Analytics reported that Android owned 43.4 percent of the global branded tablet market, second to Apple (NSDQ:AAPL)'s iOS. But when the firm included shipments of un-branded white-box tablets, Android's share jumped to 52 percent while iOS fell to 41 percent.

For some North American system builders, the custom tablet market spells opportunity. In a recent interview with CRN, Steve Dallman, Intel (NSDQ:INTC) channel chief, said he believes custom tablets can grow around vertically oriented tablets and application-specific devices. Dallman also said tablet components are already available to North American system builders and that the options will continue to grow.

Other system builders, however, are leery of competing against the likes of Apple, Samsung and Microsoft in the tablet market space. Marty Lantz, chief technical officer of MapleTronics, a system builder based in Minnetonka, Minn., said he doesn't view the custom discount cell phones space as a desirable market. "We don't want to survive on something that only has 3 or 4 margins points to make," he said. "We're looking at reselling tablets instead."

Along with low margins, pricing pressure could be a factor for system builders as the prices of tablets have fallen as the market has become more crowded. Davis said the smaller Android tablet market in particular has become tight, highlighting HP (NYSE:HPQ)'s new Slate 7, which is currently sold at $169.99, as an example of the trend.

"The pricing is very competitive," Davis said. "We're going to see some very unnatural price points for the 7-inch tablets as we get close to the holidays."