Why slowing iPad sales didn’t surprise Apple and shouldn’t surprise you

iPadMiniRetinaSilver

In case you hadn’t heard, the sky is falling in Cupertino. Missed the news, did you? Here’s the headline: Apple only sold 13.2 million iPads in its fiscal third quarter. Cry me a river.

ipad air wide

Yes, the quarterly sales are down from the prior three months and the year-ago period. Apple sold 16.3 million iPads in the first three months of this year and 14.6 million in the fiscal third quarter of 2013. Look at the iPad sales data since Apple’s tablet debuted and you can a broader view of the same thing: The iPad sales growth rate overall has slowed of late.

I don’t think this is cause for alarm. Expecting iPad sales growth to mirror that of the iPhone, which is still on a relatively stronger upward direction, is unreasonable for a number of reasons. First: phones are far more a communications necessity than tablets are, at least for now. That’s why 2013 saw nearly one billion smartphones sold with expectations of another 1.2 billion more in 2014. By comparison, last year the tablet market only topped 195.3 million units, per Gartner.

iOS 8 on the iPhone

Also, most people don’t upgrade their tablets as often as they upgrade their phones. While there will always be some people who upgrade tablets as often as they change handsets — OK, guilty as charged here — most people don’t fit that mold.

Give someone 18 months or so with a phone: They’re ready to upgrade and a carrier is very likely to help them do so with financial incentives. However, tablets in this regard are more like traditional computers: They’re going to last longer for most people. For one thing, they’re typically not subsidized so an iPad buyer is looking at an up-front investment of $499 or so (less for an iPad mini or older iPad, of course). Add a cellular radio and that investment jumps by $130, making the base iPad Air 26 percent more expensive.  That’s no small price to pay and it’s one that makes it more likely that a consumer would keep the device just a little longer instead of buying the next shiny tablet that comes along.

galaxy note 3 size

There’s another factor at play here as well. I noted back in 2012 that larger screened phones (and small tablets) would become desirable as they provided a more immersive app and media consumption experience. Fast forward to today and you see big phones getting bigger. Even Apple is expected to join the crowd on this one with a 4.7-inch iPhone launch this year. (Yes, rumors suggest a 5.5-inch iPhone but I’m still skeptical about that.) Some people use larger-sized phones as their tablets. That means less tablet demand from these people.

The phone market is also different from the tablet market in another respect. When it comes to the iPhone, most of the credible challengers are similarly priced. It’s a different story for tablets, where you can get a 16 GB Google Nexus 7 — fairly comparable to the $399 iPad mini — for $229. I think Apple is willing to give up sales volume for a much higher average selling price, though; it does the same on the MacBook side.

nexus 7 wireless dock

So let’s put these pieces of the puzzle together. Consumers are more likely to upgrade a phone on a faster cycle than they would a tablet. Tablets are generally more expensive than phones, particularly when you still have phone subsidies in place. Bigger phones are on the rise and these can reduce tablet demand. There are also credible tablet choices that cost less. Add it up and you get slower growth of iPad sales.

One more thing (see what I did there?) in terms of iPad adoption. Given that the iPad isn’t a necessity and that it did grow sales quickly early on, perhaps most of the people who have the disposable income to buy an iPad have already done so. On the company’s investor call Tuesday, Apple CEO Tim Cook noted that in the U.S. and Western Europe, overall tablet sales — not just that of the iPad — are soft, down about 5 percent this past quarter. That’s a good reason for Cook & co. to find a new sales channel for the iPad. And look at that: It just did with a big IBM deal.

ipadforbusiness

Obviously, if you sell a product, you want to see sales continuing to rise. I’m not suggesting the iPad sales figures are a “good” thing, but rather, an expected and explainable thing. And it makes sense to put the iPad in perspective compared to other business lines. As noted by Founder and Chief Analyst at Jackdaw Research, Jan Dawson, who expects a big upgrade cycle for the iPad, Apple’s tablet line is “generating revenues of $5-10 billion per quarter, or an annual run rate of about $30 billion, bigger than McDonald’s or Time Warner.”

Excuse me if I don’t shed any tears for Apple’s $30 billion iPad problem.

 

loading

Comments have been disabled for this post