What Just Happened to the Annual iPad Cycle? And Why?

This week, Apple (Nasdaq: AAPL  ) did something peculiar: It updated a major product line halfway through its expected product cycle. Now, this isn't the first time Apple has shifted an important product cycle, and it probably won't be its last. But what does the fourth-generation iPad's timing mean for consumers and investors?

A trip down memory lane
Last year, the company changed it up with the timing of iPhone launches. At the time, consumers and investors were accustomed to summer iPhone launches, but after AT&T (NYSE: T  ) lost iPhone exclusivity and Verizon (NYSE: VZ  ) announced an iPhone for its network in January, people just weren't sure what to expect.

Well, summer came and went without an official peep out of Apple. Steve Jobs would resign as CEO in August because of his ongoing health issues. Apple would unveil the iPhone 4S in October, one day before Steve Jobs died.

Not including the Verizon model, which primarily saw internal changes to facilitate compatibility with Big Red's CDMA network, the product cycle from iPhone 4 to iPhone 4S was about 16 months. That was longer than normal, and then Apple unveiled the iPhone 5 in September of this year, an 11-month cycle. The iPhone now seems destined to see updates every fall instead of every summer at this rate.

Back to the future
Along with the introduction of a new iPad Mini, Apple also updated the full-sized iPad to a fourth-generation model that includes expanded international LTE support, a faster A6X chip, and the new Lightning connector. This comes just over six months after the third-generation model was released, a move that was bound to aggravate early adopters that reasonably assumed it would be a full year before they could no longer claim to have the latest and greatest iPad.

According to Toluna QuickSurveys, 45% of 2,000 domestic iPad owners polled online were "disgruntled" that Apple jumped the gun so quickly.

At this point, it's anyone's guess as to when the iPad will see its next update to a fifth-generation model. The current industrial design is approaching its two-year anniversary, signaling a possible redesign. But will it come in another six months next spring? Or are consumers now looking at fall iPad unveilings? What just happened?

And why?
As far as why Apple may have wanted to update the iPad, I think the most compelling reason was for expanded LTE support. The new model now supports not only Sprint Nextel's (NYSE: S  ) burgeoning LTE network, but also a whole slew of additional carriers around the world.

The last model was only supported in the U.S. and Canada, and the new one has added  Germany, the U.K., Australia, Japan, Korea, Hong Kong, and Singapore. Apple had gotten in trouble in Australia by marketing the iPad 3 as an LTE device, even though it didn't support local frequency bands. The new model addresses those concerns. Approximately two-thirds of all iPads nowadays are sold internationally, so adding LTE support for those countries is incredibly important to spur holiday sales.

The new Lightning connector wouldn't have been that important. The A6 chip found in the iPhone 5 is a major achievement for Apple, since it took the sophistication to the next level by implementing custom cores (instead of ARM Cortex A9 cores) while moving down to Samsung's 32-nanometer manufacturing process. It's too early to say for sure, since the new model hasn't been launched yet, but I would wager that Apple is now using the same chip in the fourth-generation iPad. The "X" probably just refers to additional GPU cores to help drive the Retina display.

Time of the season
When iPad introductions were in the spring, I had predicted some of Apple's seasonality to get smoothed out, as iPad units would accelerate while iPhone units would decelerate over the summer, and vice versa. In recent years, Apple's seasonal trends have actually been amplified as its reliance on the iPhone has grown, with last holiday quarter's mind-boggling 37 million iPhone units sending revenue sky-high.

Source: Apple. Fiscal years shown.

As much as results were front-loaded into the fiscal first quarter (calendar fourth quarter) last year, investors can expect this trend to similarly become stronger now if Apple decides to update the iPad annually in fall instead of spring. If both the iPhone and iPad -- which combined comprise 72% of TTM sales -- then increasingly intense seasonal cycles are here to stay.

The iPhone and iPad now comprise nearly three-quarters of revenue, making them by far the two most important product families to Apple's future success. That's exactly why I've put together comprehensive reports on both of these growth magnets, all included as a bonus in our Apple premium research service. In them, you'll learn everything you need to know about the iPhone 5 and how to profit on it, as well as just how massive the global iPad opportunity will be in the years ahead. Get started by clicking here.

Evan Niu, CFA, owns shares of Apple, AT&T, and Verizon Communications. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and AT&T. 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.


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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 28, 2012, at 4:51 PM, HiramWalker wrote:

    Apple will continue to improve and update its products, despite some idiots who want to call doing so a negative move because they no longer have the latest.

    Why would any company delay improving its products for such a reason? It must be hard to complain, when you have to make up reasons to complain. I don't think anybody really does. It's just the PC-Android anti-Apple brigade, pretending to be disgruntled Apple users, as usual.

  • Report this Comment On October 28, 2012, at 4:55 PM, demodave wrote:

    I wasn't among the survey population, but I can be counted among those disgruntled by the "unscheduled" iPad ("4th generation") release. I am not a fan of the Apple Maps app. I also think that my web data "usage" has gone nuts for no reason on the iPhone 5 (my perceived usage hasn't changed much, but my connection is actually, probably mostly less reliable than on the old iPhone 4). In that regard, I can see a lot of reason for frustration with Apple's product transitions at the moment.

    But what's going on with the stock is just mind-boggling to me. I do think that that is unjustified.

    Caveats: iFan and long position holder.

  • Report this Comment On October 28, 2012, at 4:56 PM, demodave wrote:

    PS Hiram, I really am an Apple fan, and I'm a little bit disgruntled at the moment. No pretending.

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