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Can Apple Right the Ship With iPad 5?

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After announcing the newest iPhones, Apple (NASDAQ: AAPL  ) shares slipped 10%. The next product due for a refresh is the iPad, and Apple might provide a significant upgrade for tablet users this time around, which I think will send the stock higher.

Righting the ship
Apple reported disappointing iPad sales last quarter with just 14.6 units sold compared to analysts' consensus expectations of 18.1 million and the previous year's 17 million units. While that number disappointed a lot of investors, I don't think it's really anything to worry about.

Last year's number got a boost from the March release of the iPad 3. With no new iPad product out last quarter, there was nothing fresh for consumers to rush into stores for. While competition from other device makers like Samsung and Amazon (NASDAQ: AMZN  ) is getting stronger, the decline in iPad sales is not clearly linked to any significant change in consumers' typical purchasing habits.

Apple is expected to announce an iPad refresh next week at a special media event. The rumored iPad 5 will likely sport many of the new features present in the iPhone 5S -- 64-bit processor, fingerprint scanner. Supply chain sources also inform analysts that a significant form factor change is in the works after four generations of similarly designed devices.

A significant product refresh just in time for the holiday season ought to bolster Apple's typically strong first quarter earnings and could easily make up the 3.5 million iPad deficit from analysts' expectations last quarter.

Still, the company faces significant competition going into the season.

Can't beat this price
Amazon recently announced an upgrade to its Kindle Fire line -- the HDX -- that offers users similar specs compared to those rumored in the iPad Mini 2 for $100 less. Amazon's strategy is clearly different from Apple's in that it tries to make most of its profit from selling content, for which the Kindle line has been very effective. It's long sold a sub-$200 tablet for a loss. The HDX is the company's first step above the $200 level (for an entry-level device).

While the company is still expected to take a loss on every HDX device it sells, its willingness to step above the $200 threshold signals that its making a serious bid to compete with mid-to-high-end tablets. Previous generations of the Kindle Fire have been criticized for feeling as cheap as its price and not offering the best value despite its price. So Amazon is no longer trying to compete on the low-end. It's going after the mid-range market carved out by the iPad mini, and the reviews thus far seem to agree the HDX is a significant upgrade.

Corporate use
Tablets are becoming a larger part of corporate enterprises, and the BYOD, or bring your own device, trend continues to pick up steam putting the purchasing power in the hand of users instead of corporations -- who may negotiate deals with manufacturers. With Microsoft (NASDAQ: MSFT  ) ending support for Windows XP next year, a lot of enterprises may open up to the tablet market.

Both the new iPad and Amazon's Kindle could benefit from that trend, as Microsoft struggles to compete in the tablet market. The HDX offers enterprise focused features such as virtual private networking and encryption. With quad-core processing power and a consumer-friendly price point, it could capture a significant portion of the BYOD market.

The iPad 5 will likely contain the 64-bit A7 processor present in the iPhone 5s. As such, it could spur a new round of enterprise app developments for the iPad utilizing the additional processing power and subsequently take significant share from traditional PCs.

Microsoft hasn't yet caught on with the tablet market, but it's now marketing its Surface 2 as "a tablet for business." The company has even partnered with enterprise software leader SAP to build apps for Windows 8. The Surface 2 certainly offers some promising features, but it may fail to win over the BYOD crowd due to its price -- $449 for RT $899 for Pro.

Upgrade me
Apple's competition is getting stronger, but the company is likely to stay ahead of the curve with its next iPad iteration. The iPad 5 could see significant changes from previous generations this time around, spurring a significant increase in purchases this holiday season and making up for its sales miss last quarter.

One of the biggest things to watch in the coming months, though, is how tablets like the iPad and Kindle Fire HDX fare in the corporate BYOD market. Microsoft has the most to lose, and I expect it to ramp up its efforts to make partnerships with enterprises and software makers to maintain its dominance in the corporate world.

Can Apple continue to innovate?
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Read/Post Comments (3) | Recommend This Article (3)

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 09, 2013, at 4:25 AM, StockgeniusII wrote:


    I'm interested in the iPad Mini Retina with the A7X, M7 4GB, 802.11 IGZO display!

  • Report this Comment On October 09, 2013, at 5:07 AM, fauxscot wrote:

    Right the ship? Are you serious?

    The ship floats in cash. It's the rest of the crowd taking on water. Sure, Samsung has finally righted its ship, a little bit, but Apple is doing fine doing what it does. The market is the insane partner in this dance, not Apple.

  • Report this Comment On October 09, 2013, at 9:24 AM, Mathman6577 wrote:

    Good article. And good point about the iPad 5 upgrade -- adding 64-bit A7 is a significant upgrade and a great innovation in spite of what the "analysts" say.

    Yes, Apple is facing competition but it seems to be fighting it off pretty well. No hardware company on Earth could have kept up the market share numbers like Apple had when the iPad was first released in 2010.

    And yes, it is making tons of money .... $36B in profit and $150B in cash on hand is nothing to sicker at --- Amazon ? no net income last time I checked.

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