Just How Big Can the iPad Get?

Reports of an iPad mini launch are heating up, with new renderings, supply chain leaks, and worries over "yield issues" constraining launch supplies all hitting the rumor mill this week.

In the end, it looks like the launching of a smaller iPad before the holidays is all but a given. To help investors sort out the opportunity iPads add to Apple's (Nasdaq: AAPL  ) business, we've created an iPad report as part of our Apple premium report service. Following is a sample of the new iPad report that will be delivered to subscribers next Wednesday. We hope you enjoy it.

The iPad:  A tale of three markets
Investors must fight the tendency of thinking that the smartphone and tablet markets are reflections of each other, because they're not. Their similarities are only skin deep, while strategically and competitively they couldn't be farther apart.

In smartphones, Apple was a latecomer that revolutionized the industry; it was far from the first entrant. Palm (now swallowed and regurgitated by Hewlett-Packard). Research In Motion. Nokia. Motorola (now swallowed and being digested by Google). These were among the first major players in the smartphone revolution. They were iVictims in every sense of the word, but the tablet market is playing out in a totally different way.

The tablet market more closely resembles another market altogether: the MP3 music player market. With the iPod, Apple reinvented a product category that lacked leadership and over the past 11 years has maintained hegemony, with over 70% market share currently. It set the standard for what a MP3 music player should be. To this day, rivals still cannot compete meaningfully, while many have failed trying, including Microsoft (Nasdaq: MSFT  ) and its Zune player.

The iPad has redefined the tablet market in an almost-identical way to how the iPod shaped the MP3 music player market. Even the market-share figures bear an uncanny resemblance, with the iPad boasting 70% of all tablets sold. This is the magnitude of the opportunity we're looking at. If history repeats itself -- which, by all accounts, it's in the process of doing so far -- then Apple could be looking at over 10 years of incredible growth driven by global tablet adoption.

And make no mistake: We are absolutely talking about a very global opportunity here. International unit sales have steadily risen over the past 2.5 years, starting at just 30% during its launch quarter. In the most recent quarter, two-thirds of all iPads were sold abroad. This is a testament to Tim Cook's supply chain and operational prowess.

Sources: SEC filings and court filings.

Even now, despite Apple's heavy emphasis on the consumer market, the iPad is seeing adoption in other niche sectors like education and health care, among many others. The enterprise segment is also embracing the device with open arms, with 94% of Fortune 500 companies either testing or deploying it. The tablet market remains in its infancy, and it's going to be a long time until it's grown up. In the meantime, we're talking about billions in profits for Apple.

Last but not least
The three most revolutionary products that Apple has released thus far have been the iPod (2001), iPhone (2007), and iPad (2010), in that order. Each one has been a phenomenal success that has helped drive Apple to new heights. Even though the iPad is less than 3 years young, it is by far Apple's fastest-growing among these three in terms of both unit sales and revenue.

Source: SEC filings.

For example, this is how long it took for each product family to reach major quarterly sales milestones.

Product

5 million

10 million

15 million

iPod

14 quarters

17 quarters

21 quarters

iPhone

6 quarters

14 quarters

15 quarters

iPad

3 quarters

6 quarters

7 quarters

Source: SEC filings.

Advice for the road ahead

We hope you enjoyed this sample of our new iPad report. It's one of the many extras that comes with our premium research report on Apple.  With our Apple report you'll learn everything you need to know about the company, and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.

Evan Niu, CFA, and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 08, 2012, at 6:48 PM, Techie2012 wrote:
  • Report this Comment On October 08, 2012, at 8:23 PM, TMFNewCow wrote:

    Not true. It'll happen, but not yet.

    -- Evan

  • Report this Comment On October 08, 2012, at 10:08 PM, jomueller1 wrote:

    So far I cannot see what the iPad is good for except surfing the web. I bought my wife an Arnova tablet that has GPS and accepts a 32GB micro SD for movies. It is still an entertainment device that does by far not do what my laptop does.

  • Report this Comment On October 08, 2012, at 10:11 PM, chilero wrote:

    The iPad has not had any real competition. The Android tablets have been poor and the Kindles are do not directly compete.

    The biggest test will be the Windows 8 tablets that are about to flood the market. The iPad will still have fantastic growth in a growing market but I don't believe it will command that 70% market share for much longer.

  • Report this Comment On October 09, 2012, at 1:01 AM, racchole wrote:

    This article does a great job of generalizing Apple. The million dollar question is when will competitors create a product that is actually competitive?

  • Report this Comment On October 09, 2012, at 10:49 AM, kingfish100 wrote:

    The best is yet to come for Apple, both today's and tomorrow's best company worldwide. Apple should do a 20:1 split to suit some who don't understand PE Ratios but those who don't invest in Apple will keep wondering why they haven't. The wild ride has just begun!!

  • Report this Comment On October 10, 2012, at 10:44 AM, Rayheem wrote:

    I read all my Mötley Fool articles on my iPad.

    Seldom do I use the desktop, except for PhotoShop work and scanning old slides.

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