The Cupertino tech giant Apple (NASDAQ:AAPL) is slated to release its second quarter earnings coming Wednesday. Several industry experts predict that the company would report a decline in the iPad sales. Increasing competition from rivals such as Samsung (SSNLF) and Amazon (NASDAQ:AMZN), as well as the rising popularity of phablets is weighing on the sales volume of iPads. Presently the iPad is the second highest source of revenue for the company accounting for around 20% of the total sales, the major source being the iPhone.
Going Back in Time
Not very long ago, the iPad was an unprecedented leader in the tablet market, occupying 70% of the market share in mid 2012. The Android tablets were in their struggle phase then and other tablets were nowhere close to the iPhone maker’s offering. But with time Apple started to feel the heat of growing competition when Amazon started offering the less pricey and easier on pocket tablet, the Kindle Fire. Samsung’s Galaxy tab available in both 7 inch and 10 inch also started gaining momentum. There were several who criticized, including Apple, that a 7 inch tablet makes little sense. But once the sales volumes were out, experts realized that there’s a substantial market for smaller tablets.
- Warning! GuruFocus has detected 7 Warning Signs with AAPL. Click here to check it out.
- AAPL 15-Year Financial Data
- The intrinsic value of AAPL
- Peter Lynch Chart of AAPL
Smaller tablets come in much handier, are less on weight, price, and a good fit for smaller hands. So if there’s a market, why not prepare an offering to serve it. This is why Apple came out with the iPad Mini in 2012, and with its arrival, Apple expected to strengthen its supremacy further. But that didn’t really happen. Difficult to imagine, but the tech giant’s tablet market share has taken a bad hit. Overtime both Amazon and Samsung started providing better quality tablets to reduce its gap with the iPad. And what’s worked in favor of Amazon and Samsung is the cost at which one can own the tablet is much feasible than iPad’s.
Did the iPad Mini Make a Difference?
Not really. In fact before the 7 inch iPad Mini, Apple’s iPad sales was growing more than 60% as volumes were getting a good boost of 80%. But as the company introduced iPad Mini at lower prices, the average selling price of the iPad fell drastically, hitting the revenue growth. Sales grew 3% and volume rose just 22% in 2013, despite the fact that Apple had both the 10 inch and 7 inch tablet. Lower price also impacted Apple’s iPad margin that plunged radically.
In the last quarter, Apple’s revenue from iPad saw a better jump of 7% attributable to 14% rise in sales volume and the effect of the holiday season.
Apple’s Position in the Future
It’s true that the Cupertino’s market share is shrinking as other tablet makers are flooding the tablet market with numerous tablets for different target audience. But in all this the essence and the right usage of a tablet is lost. Tablet is nothing but a miniature form of a laptop, which precisely is capable of doing activities that one would expect of doing in a laptop. Apple has exactly done this with the iPad, which offers you far more apps than those offered by the Android ecosystem.
May be Android tablets are beating the iPad in volume, but the overall iPad usage and user experience is far more enhanced than rival tablets. Apple has a limited target audience who are usage driven, while other tablet makers are manufacturing tablets for every class of the audience who mostly do not use the tablet in the true sense.
Few things that could help Apple regain its lead in this arena is offering it at competitive prices, or manufacturing a much higher quality product that what it is at present. This would assist the company in registering growth that it used to record in the good old days. iPad users use the App Store and iTunes heavily, and that’s brings in huge revenue to the company. So playing the cards right could give a solid revenue and volume boost to the company.