U.S. Consumers Want Tablets, but That’s No Answer for Apple

24/7 Wall St.

When Apple Inc. (AAPL) reported earnings after markets closed Monday night, the company said it sold 26 million iPad tablets during its first fiscal quarter, a record number. Investors paid more attention to the company's sales of iPhones, and even though Apple sold more smartphones in a quarter than ever before, the total missed estimates and the company's shares got hammered in after-hours trading.

Millions of pixels will be burned today on what happened at Apple, and it is reasonably certain that tablet sales will not get much attention. But iPad sales rose more than 13% year-over-year and more than 80% sequentially. Not too shabby.

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In a report released on Monday, the Consumer Electronics Association (CEA) said that 44% of online U.S. consumers owned a tablet at the end of December and that 70% of online consumers expect to purchase a tablet in the future, a number consistent with CEA's previous survey results. According to CEA, the market for tablets is "showing the beginning signs of market saturation" and that to attract consumers, tablets must be competitively priced and easy to use.

Demand for tablets with smaller screen sizes (7 to 8 inches) had increased from 25% in June of 2013 to 32% in December. Demand for larger (bigger than 8 inch) screens has fallen from 73% to 68% in the same time period. In another report released earlier this month, CEA said it expects U.S. tablet sales to rise more than 15% to 89.3 million units in 2014 and produce revenues of $27.3 billion, a rise of 3%.

For Apple, the company's average selling price (ASP) for an iPad in its first quarter was $441, essentially flat with $439 in the previous quarter. The company's ASP for an iPhone was $637, up more than 15% from an ASP of $577 in the previous quarter. iPad unit sales were half the iPhone's. The upshot is that Apple cannot hope to replace iPhone revenues and profits with iPad sales.

Apple shares were down about 7% in Tuesday's premarket trading to $511.25, after closing at $550.50 on Monday night. The stock's 52-week range is $385.10 to $575.14.

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