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

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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(s aapl) 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(s goog) 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.


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.


15 Responses to “Why slowing iPad sales didn’t surprise Apple and shouldn’t surprise you”

  1. Joe Belkin

    Apple sold $6 BILLION dollars worth of ipads in 3 MONTHS – that is MORE money than 75% of corporations make in an ENTIRE year. And, yea, the ipad is proving that you only need one every 2-3 years but it’s not so bad for Apple since the 80% that are sold are Apple – and of course, since Apple has the mac, iphone, and retail divsions all generating more TENS OF BILLIONS … it’s not so bad to have one division only making $6 BILLION during a slow quarter ($13 BILLION during the Christmas quarter) … by the way, the iPad business unit ALONE islarger Facebook, Twitter, Yahoo, Groupon, and Tesla COMBINED.

  2. Keith Hawn

    A real interesting data point that we will never ever see that would add a little bit more texture here is the trajectory of sales of iPads thru Walmart….

  3. Sumocat

    Remember pre-iPad when everyone was saying Apple would be “stupid” to make a tablet, and that it was doomed, and that the whole market had failed? What are they saying now? Oh, right: the iPad is doomed! What a bunch of a-holes.

  4. Richard Love

    Interesting and fairly accurate view though it does sound rather Apple apologist. Fundamentally iPad faces strong competition from devices that are lower priced (Android) and in many cases more versatile (Windows touch 2 in 1’s with detachable screens). The Mac Air & PC is also seeing strengthened sales as people find that the laptop form factor is often more productive.

    • toyuniverses01

      Apple owns the high end in every market they compete in, and make most of the profits in every one of them, including PC’s. They aren’t suffering from low end competition because they don’t compete in the low end. Windows tablets are too little too late.

  5. Sean Gordon

    Don’t be sketical about the 5.5 iPhone 6. It’s a real product for which Apple knows there is a very real and growing market. As their court-revealed email stated: customers want what we don’t have (in reference to Galaxy and Galaxy Note sizes). Apple knows how important the 5.5 will be in all markets, but especially China, where phablets are even more popular.

    Apple cannot afford to lag behind again in a market where 4.7 just isn’t that big for a rapidly increasing number of smartphone users.

  6. people can only do so much at any given time, no matter how fast technology works, and pushing technology the same way the fashion industry and car industry does, does not work, you have so many devices out there, it’s almost a question, which one will i have time for today, it’s that simple

  7. lenslens

    Nice article. Not much to disagree with and fairly complete. The tablet was one of those rare pieces of technology that was very mature, hardware design wise, very quickly after being introduced into the market, so it will reach market saturation faster than many other computing devices have done. Plus the iPad has several decent alternatives for the higher volume target markets.

  8. Buzz Bruggeman

    At Matt Miller’s suggestion, I have been testing a Huawei Mate 2. It’s an outstanding device, and I don’t think that I have touched my Kindle paperwhite, my Kindle Fire HD7, or my iPad since I got it.

    As you said, much more immersive device, easy to carry, brilliant screen, and battery life is surreal. That and a price point of $300 unlocked, make it feel like a too good to be true value. Fit and finish are excellent, and it runs every Android app that i have tried flawlessly.

    Not sure you have covered it, but my take is that devices like it are going to really impact tablet sales.

    Highly recommended device.