Apple Needs Major Innovations to Boost iPad Sales, Say Analysts

NEWS ANALYSIS: Forget the channel. To get iPad sales riding high again, Apple needs to introduce some of the big ideas it says it's working on.

Global tablet shipments were down almost 30 percent sequentially, in the first-quarter 2014, but up 4.6 percent year on year, Digitimes Research reported April 23. Sales of non-iPad tablets totaled 22.31 million units during the quarter, which was down 20 percent sequentially but up over 30 percent from a year ago. iPad sales, however, totaling 15.85 million units, suffered both sequentially and year on year, the report added.

Analysts gathered as much later in the day, when Apple announced the results of its fiscal 2014 second quarter and iPad sales represented the rare downward-facing arrow. Overall revenue hit a second-quarter record, profits were up, iPhone sales were up and even Mac sales came through. And yet, Apple sold 16.36 million iPads, according to Apple, down from 19.5 million a year ago.

Apple CEO Tim Cook, during his opening comments, had a ready explanation that included Apple having increased its iPad channel inventory this year (whereas last year it reduced it) and having a balance of supply and demand (whereas last year ended with a "backlog").

During the Q&A portion of the call, Cook agreed to discuss the matter further. But this time, instead of channels and supply, he talked about how much people love the iPad, how satisfied with it they are, and how many of the darn things Apple has sold.

"It absolutely has been the fastest-growing product in Apple's history, and it's been the only product that we've ever made that was instantly a hit in three of our key markets, from consumer to business, including the enterprise and education," Cook said.

"If you really look at it, in just four years after we launched the very first iPad, we've sold over 210 million, which is more than we or, I think, anyone thought was possible at that period of time," he continued. "And it's interesting to note that that's almost twice as many iPhones than we've sold in a comparable period of time, and over seven times as many iPods as we've sold in the period of time. So, I think it's important to kind of put that in perspective."

While few would disagree that Apple has sold amazing numbers of tablets in the past, some analysts have different ideas about what's happening with iPad sales now.

Forrester analyst JP Gownder, in a blog post following the call, offered some of his.

First, he said, "Apple's premium pricing is catching up to it." Samsung and Amazon both offer tablets priced below $200, while the iPad Air starts at $499.

Apple's iPad release cycle also hasn't helped. Unlike its once-a-year iPhone upgrade schedule, it hasn't been so routine with its tablets; in 2012, Apple introduced the fourth-generation iPad just seven months after its predecessor.

And still, Apple hasn't introduced the "next big iPad product," wrote Gownder. "More innovation commands a higher price, provokes replacement behavior, and upends release cycles," he wrote.

Analyst Jan Dawson, with Jackdaw Research, echoed some of the same sentiments and offered others in his own blog post following the call.

"The iPad is a victim of its own success," wrote Dawson. "Many people who want one have one, and don't feel an urgent need to replace it quickly. Many first- and second-generation iPads are likely still in use, and three quarters of all iPads sold were sold in the last two years. If the replacement cycle is longer than for iPhones … then many of those buyers won't buy another for some time."

The big question, Dawson concluded, is whether this trend will continue—or, can Apple do something soon to change it?

"I suspect that we are unlikely to see another massive wave of first adopters, except possibly in the education market. … That means it may well be slow going until Apple gives people a compelling reason to upgrade."

Cook, answering the follow-up question on the call, added, "When I back up from all of these [high customer satisfaction ratings and use case examples] I feel great. That doesn't mean that every quarter—every 90 days—is going to [yield] a number that everybody is thrilled with. But what it means to me is that … things look very, very good. That iPad has a great future. And of course, the thing that drives us more than any of this are the next iPads … that are in the pipeline, the things that we can do to make the product even better. And there is no shortage of work going in on that, nor any shortage of ideas."

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