When Apple sold 26 million iPads, company officials were ecstatic. It is unthinkable to even hint that everything is not what it seems and that Apple iPad is actually in trouble.
But since then, Apple has reported five consecutive quarters of iPad sales declines. In fact, the sales slide has been accelerating recently. Last quarter of 2015, iPad unit sales and revenue declined 23 percent and 29 percent, respectively, on a year-over-year basis.
Nevertheless, Apple CEO Tim Cook has emphasized his confidence that iPad sales can recover and eventually return to long-term growth. On the company's earnings call last month, he stated:
Other potential causes of the iPad sales slowdown include greater competition from other tablet vendors and cannibalization from "phablets" like the iPhone 6 Plus and ultra-portable laptops like the new MacBook.
Fortunately for Apple, changes and adjustments were quickly made.
There are three main developments that suggest the iPad could return to sales growth soon. First, Apple announced a partnership with IBM last summer to create more than 100 industry-specific iOS apps - primarily for the iPad. IBM will also help sell iPhones and iPads through its own sales force. This partnership could help the iPad gain traction in corporate and government settings.
The first apps from this collaboration were released in December 2014, and new ones will arrive throughout 2015. Businesses and governments both tend to have long sales cycles, so the benefits of this initiative are just starting to accrue. But iPad sales to corporate and government users will likely gain steam over the next year or two as more organizations evaluate and test the new hardware/software package.
Second - and relatedly - Apple is widely expected to release a larger 12"-13" iPad this fall. This isn't likely to sell in the same volume as Apple's traditional 9.7" iPad form factor, but it could be very helpful for business users and should be more profitable for Apple. It's possible that some businesses are holding out on iPad purchases to get this larger model.
Third, the replacement cycle could soon become a positive, rather than a negative for iPad sales. Apple has sold just under 60 million iPads in the past year, and based on Tim Cook's comments, about half of those sales have gone to new users. That means about 30 million people have upgraded their iPads in the past year.
Even if the iPad replacement cycle is four to five years (roughly in line with the PC replacement cycle), 30 million is significantly below the stable long-term replacement rate. With the popular iPad 2 having just passed its fourth birthday, more and more iPads will reach prime replacement age over the next few years. This should stimulate higher iPad replacement sales.
If Apple's next-generation iPads offer significant improvements, that will also help in a big way. As noted above, the iPad Mini Retina version released last fall was almost identical to its predecessor. The iPad Air 2 did boast improved specs, but it was a much smaller change than the previous year's leap from the iPad 4 to the iPad Air. The lack of innovative upgrades has probably contributed to weak year-to-date iPad sales.
But since then, Apple has reported five consecutive quarters of iPad sales declines. In fact, the sales slide has been accelerating recently. Last quarter of 2015, iPad unit sales and revenue declined 23 percent and 29 percent, respectively, on a year-over-year basis.
Nevertheless, Apple CEO Tim Cook has emphasized his confidence that iPad sales can recover and eventually return to long-term growth. On the company's earnings call last month, he stated:
"... I believe the iPad is an extremely good business over the long term. When precisely it begins to grow again I wouldn't want to predict, but I strongly believe that it will."However, this doesn't mean that the iPad is not in trouble. For instance, customers are not satisfied with the screen quality of the iPad Mini Retina released in late 2013, which likely contributed to the weak demand for that model.
Other potential causes of the iPad sales slowdown include greater competition from other tablet vendors and cannibalization from "phablets" like the iPhone 6 Plus and ultra-portable laptops like the new MacBook.
Fortunately for Apple, changes and adjustments were quickly made.
There are three main developments that suggest the iPad could return to sales growth soon. First, Apple announced a partnership with IBM last summer to create more than 100 industry-specific iOS apps - primarily for the iPad. IBM will also help sell iPhones and iPads through its own sales force. This partnership could help the iPad gain traction in corporate and government settings.
The first apps from this collaboration were released in December 2014, and new ones will arrive throughout 2015. Businesses and governments both tend to have long sales cycles, so the benefits of this initiative are just starting to accrue. But iPad sales to corporate and government users will likely gain steam over the next year or two as more organizations evaluate and test the new hardware/software package.
Second - and relatedly - Apple is widely expected to release a larger 12"-13" iPad this fall. This isn't likely to sell in the same volume as Apple's traditional 9.7" iPad form factor, but it could be very helpful for business users and should be more profitable for Apple. It's possible that some businesses are holding out on iPad purchases to get this larger model.
Third, the replacement cycle could soon become a positive, rather than a negative for iPad sales. Apple has sold just under 60 million iPads in the past year, and based on Tim Cook's comments, about half of those sales have gone to new users. That means about 30 million people have upgraded their iPads in the past year.
Even if the iPad replacement cycle is four to five years (roughly in line with the PC replacement cycle), 30 million is significantly below the stable long-term replacement rate. With the popular iPad 2 having just passed its fourth birthday, more and more iPads will reach prime replacement age over the next few years. This should stimulate higher iPad replacement sales.
If Apple's next-generation iPads offer significant improvements, that will also help in a big way. As noted above, the iPad Mini Retina version released last fall was almost identical to its predecessor. The iPad Air 2 did boast improved specs, but it was a much smaller change than the previous year's leap from the iPad 4 to the iPad Air. The lack of innovative upgrades has probably contributed to weak year-to-date iPad sales.
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