Apple iPad Sales Continue to Plunge: Should You Be Worried? - Analyst Blog
While Apple Inc. AAPL is basking in the glory of its recent earnings results, there remains a spot of concern for this tech giant, which has not gone unnoticed by investors. We are talking about the iPad: among all product lines offered by the company, the iPad has been an exception when it comes to consistent success.
The product, despite its immense popularity within the tablet market, has continuously reported declining revenues leading investors to give a second thought regarding its prospects and position compared to other “in demand” Apple products.
The Recent Quarterly Sales Figures
Apple derived the majority of its earnings from the flagship product iPhone. iPhone sales hit 61.2 million units, up 40% year over year, and revenues from iPhone surged 55% from the year-ago quarter to $40.3 billion. In addition, despite the overall lull in the PC market, Mac unit sales grew 10% year over year to 4.6 million, translating into revenues of $5.6 billion, up 2% from last year.
On the other hand, iPad recorded sales of 12.6 million units, which slipped 23% year over year and revenues from the product came in at around $5.4 billion, down 29% from the year-ago period.
Apple vs Tablet Market
According to the IDC report published in Feb 2015, Apple iPad is unlikely to witness much improvement, going forward. Apple generates a majority of its revenues from the tablet category, following close rival Samsung. However, it would continue to see its revenue declining in terms of iPad sales through at least 2019 and Apple’s market share in tablets is expected to fall 23% in 2019.
According to the IDC report, the worldwide tablet market hit started decelerating in 2014 with the growth rate slowing to 7.2% from 52.5% in 2013. However, analysts in this segment remain hopeful that tablet sales may pick up again on the back of Microsoft Corp’s MSFT initiative to bring in a new OS, larger screen, and productivity focused solutions at a competitive price.
According to reports, Lenovo was the only tablet vendor among the top 5 that included as Amazon AMZN, Asus, Samsung and Apple, Lenovo to have recorded positive growth in 2014 owing to its shift toward larger screen sizes, productive solutions and expanded reach in the Asia/Pacific markets.
On the other hand, Apple failed to impress tablet users despite the launch of various versions of iPads in 2014. The company’s latest generation of iPad Air and Mini failed to generate any sensation given the minimum upgrades over their previous versions. In 2015, iPad sales are reportedly expected to fall to 60.1 million units, down 5% from 2014.
The Theory of Cannibalization
Apple’s iPad, which currently appears to be a sinking ship, holds a lot of promise, according to CEO Tim Cook. He believes that iPad has been a victim of cannibalization as its own phablets — iPhone 6 and 6 Plus – entered the market. In addition, the launch of MacBook Air and the new 12-inch MacBook also accounted for some of the damage.
However, iPad numbers may be revived through the company’s collaboration with IBM Corp. IBM for developing new apps for enterprise users — iPad’s current target market.
The deal was primarily aimed at integrating IBM’s Big Data and analytics capabilities with iPhone and iPad for business customers. We believe that this partnership has the potential to help Apple expand in the enterprise segment and generate much-needed growth for the iPad.
Overall, the partnership is expected to yield more than 100 applications related to analytics, Big Data, mobile device management and security software, primarily for enterprise users in retail, healthcare, banking, travel, transportation and telecommunications sectors.
Further, it is rumored that Apple is developing a 12.9-inch iPad, to be launched this year, targeting the untapped markets for the iPad — the business customers. Further, the company’s expansion plans into Greater China look promising as it focuses on an underserved market for all Apple offerings.
Should Investors Worry?
Leaving aside the skepticism, iPad still accounts for over $5 billion of Apple’s top line. While the growth rate may not be impressive, the company continues to command a substantial market share (nearly 28%), way ahead than Samsung (around 14.5%) according to market reports.
Hence, even if we consider iPad to be cannibalized by iPhones and MacBooks and pressured by the persistent lull in the tablet market, it continues to have better prospects than others in the business.
While the long-term prospects of this product remain difficult to predict in the light of changing technology, customer preference and the ever growing business of phablets, we are hopeful that the company’s initiative to revive its key product line is likely to show results in the near future. Hence, as long as the tablet market continues to exist, we expect iPad to carry a certain niche similar to iPhones.
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