Monday , January 18 2021

Apple has a New iPad Problem – Apple Inc.. (NASDAQ: AAPL)



With the amount of press around Apple (NASDAQ: AAPL) business services, it seems that some analysts forget that the company today, at the moment, gets 87% of its revenue from products. In the future, services can be more than the product, but products will still be a gateway. One product that doesn't seem like a lot of press is the company's iPad business. With the iPhone business on shaky ground, Apple can't afford its iPad or Mac business to fight too. The last quarter, iPad and Mac were just over 19% of Apple's total revenue. Unfortunately, Apple's most recent iPad announcements could spell problems to both businesses.

The tablet market is shrinking… wait to grow… in fact we don't know

The tablet business seems to have reached a point where analysts can't find out whether customers want these devices or not. A study of Statista suggests the following bleak picture:

Year

2018

2019

2022

2023

Tablets sold

150.3m

136.8m *

134.1m *

122.1m *

(Source: statista tablet market projections *)

Users are told that demand for slates will decrease as consumers choose to buy laptops, Chromebooks, and hybrid devices. On the one hand, Apple has numbness on tablet operating systems. On the other hand, it doesn't do much benefit to owning a market that is falling apart.

There is only one problem… the market may not fall apart after all. As soon as you can find a study that says sales of tablets will deteriorate, you can find another suggesting that tablets will return to growth. According to Frost and Sullivan, the tablet market will grow at an annual compound growth rate of 1.6% throughout the year 2024. Although this does not sound like rapid growth, by 2024, it would mean 187 million units across Wales. the world.

iOS tablet market share worldwide

(Source: iOS Worldwide Tablet market share)

This second study suggests that tablets will gain new abilities and cancel laptop sales. Assuming that iOS still holds its share of the global market of 74%, by 2024, the company would sell around 138 million of these devices. Giving investors an idea of ​​how this growth would look, during 2018, the company sold about 43 million tablets.

In the last four quarters, the average revenue per iPad has covered about $ 430. On 138 million devices, this would generate about $ 15 billion in quarterly revenue. Last quarter, Apple produced $ 6.7 billion from selling iPads. More than doubling its iPad revenue in the next five years, something that investors would be more than willing to accept.

If this is the end of the story

It seems like every time Apple starts to solve a problem, we create another. The first example is the iPhone X. It seems obvious when looking back, that those who bought the iPhone X were the ones who stayed through the iPhone 6, 7, and 8. , for a different form factor. Priced at $ 999, it appeared that this premium device answered a question of calling for something different. Apple assumed that everyone would pay $ 1,000 for a phone, and introduced the iPhone XS, and iPhone XS Max. Ultimately, the company made the iPhone XR available at $ 749. Meanwhile, Apple was witnessing a slower iPhone call than expected and is still trying to compensate for the lost land. .

A second mistake was the timing of the introduction of the iPad Mini. The original iPad was released in April 2010. Over the next two years and more, others introduced smaller tablets while Apple introduced the iPad 2 and even the iPad 3. With users captivating over the Retina exhibition on the iPad 3, in month November 2012, Apple introduced the iPad Mini… without the Retina exhibition. In fact, it took until a year later when he won the Retina Mini exhibition himself from the end.

Unfortunately, Apple seems to have created a problem again as it started to resolve another. During 2018, Apple's sales momentum declined significantly.

Quarter

Q1 2018

Q2 2018

Q3 2018

Q4 2018

IPad Revenue Growth

+ 7.3%

+ 5.1%

-6%

-14.6%

(Source: Quarterly AAPL results Q1 '18 – Q2 '- 18 – Q3' – 18)

It is no surprise that this slowdown occurred, given the Apple iPad release schedule. The iPad from March 2017, was a step up in performance, but not transformational. The introduction of iPad Pro devices in June 2017 did not give users a reason to rush out and upgrade. Users have had to wait for the iPad 3 Prord produce, and remove the home button, in order to get a marked change. As the devices had not been released until the fourth quarter was already a third over, it is not surprising that the results had suffered.

The Pro Pro iPad buyers had made a big impression on the buyers, as iPad revenue had jumped over 13% in the first quarter of 2019. If Apple was left alone for another quarter or two, iPad results could continue to improve but unfortunately that's not the end of the story.

Install the Air out of iPad results

Introducing the latest iPad Air and the iPad Mini is a confusing option on many aspects. First, the iPad Mini has not been renewed since 2015. Secondly, the iPad Air has not been a name used since 2014. Almost like Apple has forgotten that it has sold & # 39 These devices are in the first place.

Device

Price

Screen

Weight

Storage

Processor

Other

iPad On 2019

$ 499

10.5 ”

1 pound

64 GB

A12 Bionic – M12 coprcessor

ID ID – Lightning Connector

2019 iPad Mini

$ 399

7.9 ”

0.66lbs

64 GB

A12 Bionic – M12 coprcessor

Acute ID – Lightning connector

(Source: Apple iPad Air and iPad Mini pages)

If these devices were an independent product, the results of the company would probably be amazing. The problem in Apple is now giving consumers a lower price choice, which can break into the average selling price that started to improve.

Quarter

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

IPad average selling price

$ 446.97

$ 450.55

$ 405.17

$ 422.68

* $ 507.57 to $ 511.45

(Source: AAPL quarterly earnings – * ARPU for Q1 is derived from Apple selling 13.1 to 13.2 million iPads in the first quarter of the last two years. Taking the $ 6.7 billion in iPad sales and dividing by 13.1 or 13.2. million produces the range from $ 507.57 to $ 511.45) t

iPad On 2019

(Source: iPad Air)

On iPad iPad Air side, buyers who face either an iPad Air or one of the iPad Pro models have a relatively simple selection. For $ 300 to $ 500 more, they can have a Pro device with a faster processor and a slightly better screen to form a factor, or they can only get the Air iPad. In short, the iPad Air is such a good device, with impressive specifications of such, that it will likely make buyers think about why they would waste $ 300 or more on iPad iPad.

In addition, if users are considering MacBook 12 ”, the pricing between the iPad Air is very challenging. The MacBook is initially $ 1,299 and has a screen with 226 pixels per inch (PPI). The device weighs 2lb and comes with 256 GB of storage. Instead of spending $ 1,299, a buyer could choose an iPad Air with the Smart Keyboard. 256 GB iPad Airplane costs $ 649, the Smart keyboard runs $ 159 for a total cost of $ 808.

Although the iPad Air runs a different operating system, the Files app moves the device slightly closer to the Mac. What's more, the iPad iPad has half the weight without the keyboard, supports Apple Pencil, and has a super-pipe at 264. This is a case where spending nearly $ 500 less gives a little less t from a screen to the user, but is that enough to justify a huge cost difference? It's probably not.

Where the iPad Mini is concerned, it is possible that some users will choose the Mini at $ 399 instead of the slower processor and the larger iPad screen at $ 329. However, it is equally possible that some buyers who would have bought the Air at $ 499, will decide to save the $ 100 and cut weight by going with the Mini. The bottom line is Apple revived two products from many years ago, in time to break the earnings of an ARPU iPad that just started.

Today against tomorrow

A significant number of articles are written about what Apple will look like tomorrow. The company's services business is being negotiated as if its growth is guaranteed. There is a possibility that services will overtake products, but that is our long way true. To be clear, I own Apple stock, I intend to hold on to my shares. I believe that services will be a growth driver for a long time.

However, Apple has shown that it is not invalid when releasing large products. The iPhone XR was released after the XS, and again on the basis of demand, the situation should have been reversed. Apple made a strong move in reshaping the Pro iPad line with its screens having been beautifully extended, USB-C charge, and keyboard and pencil support. Users had to choose between spending $ 329 on the cheaper iPad or $ 799 or more for iPad iPad. The ARPU seems to have increased dramatically on Pro sales strength.

While the iPad iPad and iPad Mini have designed to drive the demand for iPad sales, the pricing can put a squeeze on ARPU again. In addition, Apple made the new Air iPad so capable, so that some buyers could choose the Air over some MacBook models. The company has been successfully pushing the price point to the Board to stimulate higher revenues usually on relatively smooth growth in units. If the Air redesign with its keyboard layout steals MacBook sales, Apple's overall revenue could suffer significantly from the huge difference in pricing.

Apple is constantly trying to improve its hardware options to appeal to many users. Right now, the lineup between the iPad Mini, the iPad iPad, the iPad iPad, and MacBook has gone a little confusing. Apple hopes that consumers will stay in their lane and buy what it wants them to do. Unfortunately, Apple may have just caused its own iPad problem.

Disclosure: I / we are long AAPL. I wrote this article myself, and I express my own opinion. I am not receiving compensation for it (other than Search for Alpha). I have no business relationship with any company whose stock has been mentioned in this article.


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