The Implications of iPad Demand

According to Wal-Mart's Thanksgiving sales figures, the iPad mini was one of its top sellers. The company reports it sold more than 1.4 million mobile computing devices, a large portion of which were Apple's (NASDAQ: AAPL  ) minature devices. Furthermore, online auction site eBay tweeted that it was selling an iPad every second. In light of such gaudy stats, should Apple investors be rejoicing?

Not quite yet.

2013 iPad demand
The International Data Corporation estimates that 47.6 million tablets were sold in the third quarter of 2013. Of these, only 14.1 million were Apple iPads. This was a 3% decrease from the 14.6 million sold in the second quarter second and was less than a 1% increase over last year's figures. As a consequence, Apple's global tablet market share has fallen to 29.6%, the lowest it has been in company history. 

This decrease in demand is attributable to two causes. First, Apple chose not to launch its new products until recently. Therefore, volume was stale throughout the earlier part of this year while consumers waited for a refresh. Second, many other competitors entered the market, offering lower priced goods.

Samsung (NASDAQOTH: SSNLF  ) grabbed 20.4% of the global market share by bundling its Galaxy Tablet with other successful products including its smartphones and televisions. Asus took a 7.4% market share selling the Nexus 7 tablet for Google (NASDAQ: GOOGL  ) .

While Apple's sales are on the decline, companies like Samsung and Google are seeing accelerating increases in sales. In a tablet industry that is growing 36% year over year , these two should continue to enjoy rising sales.

Why Apple has a problem
Given this sub-par iPad performance, Apple investors should be holding their collective breath hoping current sales continue throughout the end of the fourth quarter. If they do not, the company could post final sales figures barely higher than last year.

If this turns out to be the case, Apple will find itself in a precarious position. It will have to face the fact that its premium pricing strategy is losing traction and may have to consider lowering prices.

In the 7 to 8-inch tablet market, Apple's second generation iPad Mini starts at $399. Comparatively, Samsung's Galaxy Tab 3 starts at $279.99 and Google's Nexus 7 starts at $229. Furthermore, in the 9 to 11-inch tablet market, Apple's iPad Air starts at $499, whereas Samsung's Galaxy Tab 3 costs $359.99 and Google's Nexus 10 costs $399.

Tablet size 

Apple

Samsung

Google

7-8"

     

Starting price

$399

$279.99

$229

9-11"

     

Starting price

$499

$359.99

$399

Source: arstechnica.

On the other hand, Apple's appeal lies within its branding. Although many of its products are not far superior to those released by competitors, Apple has positioned itself as a premier manufacturer. If it does lower its prices, it may decrease the value of its brand, which could result in a long-term erosion of company value.

Why investors should care
Ultimately, investors need to keep a close eye on Apple's iPad sales throughout the fourth quarter. If the results are unimpressive, investors must accept that Apple will find itself in a lose-lose situation. Though the company is not facing immediate peril, this holiday season's shopping figures should prove quite telling.

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Read/Post Comments (10) | Recommend This Article (0)

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 December 03, 2013, at 6:10 AM, fauxscot wrote:

    FUD from the Fool.

    The old "Market share is king" red herring.

    Try this.... "market share x profit" and see who's on top.

    Again.

    Second place is kinda empty. The bottom, however, is a friendly place with lots of company.

  • Report this Comment On December 03, 2013, at 6:52 AM, bugnuts wrote:

    We've heard this "Apple must lower prices" crap umpteen times before ... with the Mac, the iPod, the iPhone, and now the iPad.

    Forget it. Apple's cash-generating juggernaut is chugging along quite nicely, thank you very much.

  • Report this Comment On December 03, 2013, at 6:53 AM, travelfool wrote:

    Pleeeeeease spare the readers another click bait! Poorly written blog with flawed logic and biased assumptions to boot. How did the author arrive at the idea that "many of its products are not far superior to those released by competitors....."??? Thanks for another APPL blog that's a complete waste of time. Not interested in the personal opinion of a twenty something with no industry or investment experience.

  • Report this Comment On December 03, 2013, at 6:59 AM, b4unewme2 wrote:

    "Though the company is not facing immediate peril, this holiday season's shopping figures should prove quite telling". He makes it sound like Apple is teetering on bankruptcy. It's amazing how analyst can see the same data and come up with completely different opinions. It's also amazing how and a Motley Fool contributor can fill up an entire page without providing an ounce of actionable information. The words "peril" and "Apple" should not even be in the same sentence.

  • Report this Comment On December 03, 2013, at 7:01 AM, WineHouse wrote:

    I must respectfully disagree with the author's views about the relative quality of Apple products vs. the competitors' products. It really depends on what a user expects of a tablet (or a smart phone, for that matter).

    Clothing is a lot cheaper at Marshall's than at Saks Fifth Avenue. For most users of clothing, there's no perceived added value in the Saks 5th Ave merchandise relative to the Marshall's merchandise, so the choice is clear.

    The same holds true for Apple vs. its so-called competitors. Consumers have choices, and they make their choices based on what they perceive as value for themselves. If a cheaper device satisfies their expectations and/or specific requirements, then why buy a more expensive device? On the other hand, if the more expensive device is a better fit to one's expectations or requirements, then it makes no sense to save $100 and wind up with a product that, for whatever reason, is unsatisfactory for the purchaser.

    There will always be consumers who value the clothing sold at Saks Fifth Avenue -- and not merely because of the prestige value. The clothes are of higher quality in terms of materials and workmanship, they last much longer, and the customer service is superior (e.g., custom-tailored alterations for a perfect fit).

    The same is true for Apple products. But this "added value" may or may not be of personal value to the individual consumer.

    For those who get new phones every two years, durability is not an issue. For those who don't make full use of the capabilities of a smart-phone, security (whether in terms of theft or malware) is not an issue. Etc. etc. etc.

  • Report this Comment On December 03, 2013, at 7:25 AM, WineHouse wrote:

    I have a question. All then-line pundits and "analysts" pay close attention to iPhone and iPad sales (and sometimes the accessories for those products) when evaluating Apple. I have yet to see an article that includes the iPod series. Why not? (that's the question -- Why Not?).

    One of the iPods, in particular, is notable because it's not really an iPod. That's the iPodTouch, a truly handy portable device that can do everything an iPhone can do except access cellular networks -- it's WiFi only. About a year ago, I was thinking of getting a tablet. I had seen various friends' tablets "in action" while they were on travel (both Samsung and iPads), and I was truly impressed with the portability and functionality of the devices. I had been toting an ASUS netbook around with me on travel, and it was a pain! These tablets looked like a much better solution for my traveling needs. So I did online research, and finally visited an Apple Store. I looked at the iPad and the iPad mini, and was leaning toward the mini because of its compact size, and then out of the corner of my eye I saw -- an iPodTouch. I went over and played with it a bit. As far as I was concerned, this was an iPad Micro! (I was unaware at the time that there are some apps that are available for iPad but not for iPodTouch or iPhone; but those apps are not a big deal for my travel needs). I wound up buying a 32-Gig Pod for slightly less than a 16-Gig Mini, and I can stick it in my pocket or purse and it's been great! A couple of months after I got the Pod, I took a 4 week trip to Europe and took both the Pod and the Asus netbook. The ONLY time I used the netbook was to download the pictures from my digital camera for backup. Everything else was done with the little Pod.

    No other tablet manufacturer that I know of makes or sells a "micro" tablet. Why not? And why isn't the whole iPod series ever discussed by analysts or bloggers?

  • Report this Comment On December 03, 2013, at 8:48 AM, RadarTheKat wrote:

    What's always left out of the strict price comparison relative to other tablets is resale value. Count this and iPads become considerably less expensive. To the poster who compared the tablet market to the decision to shop Saks, how many Saks shoppers resell their clothing. Doesn't fit the profile of that shopper, but nearly all tablet buyers would sell on their tablet when it comes time to upgrade, so you should factor in tablet resale values to compare lifetime costs of iPads versus other tablets.

  • Report this Comment On December 03, 2013, at 10:18 AM, Mrr82 wrote:

    Sorry...apples in q1. Last year is already over.

  • Report this Comment On December 03, 2013, at 10:58 AM, SSchlesinger wrote:

    This was a great article! I'm sorry if the Apple fanboys disagree with it, but don't shoot the messenger. If you really want to make the author look foolish (pun intended) why don't all of you who have had your delicate sensibilities offended buy 10 iPad Airs each and give them out this holiday season? You won't have any problem finding them in stock everywhere.

    The other real problem that the author didn't address is the sub $150 7" tablet market. You can find left over models from last year and items like the Asus Memo in this category. What you're getting is lower resolution, 1GB of RAM instead of two, and a tad bit slower processor from MediaTek .

    What is happening now is those original iPads have dying batteries. Some of the iPad2s have batteries that have significantly shorter battery life. Consumers are looking at the cost of repair for them and are seeing for not that much more money they can have a new 7" tablet. Yes its not Apple so I know for a lot of you this won't be a consideration. But for the folks who weren't in love with the Apple logo in the first place perhaps what they are seeing is that tablets are disposable consumer electronics and can be sourced for less than half of what Apple wants. Not everybody who has an Apple product is as emotional about their purchase and love for Apple as the hardcore fans

    .

    What the author has told you is that when people shop for tablets for each 100 who buy a tablet 70 of them ARE NOT buying Apple. If you feel comfortable with this fact because it supports your Apple superiority position then it will be 71, 72, 73 into next year. Your strategy is fine as long as you aren't an Apple shareholder.

    When Apple was the only real game in town they could get $500+ for a tablet. Now that there is real competition that is selling for a lot less the vast majority of the public are buying those tablets instead. But the one point I disagree with is that Apple should lower it's price. I think they should take their prices up $100 on each model because there are enough fans out there who will gladly pay this and it will help offset their falling sales.

  • Report this Comment On December 03, 2013, at 7:09 PM, hank321 wrote:

    This article is shallow and foolish, and not in a good way.

    Perhaps the author should finish his education, get his degree, and get some investment experience, before he starts giving advice to people who have been analyzing SEC submissions, balance sheets, and tech markets, and successfully investing for decades.

    I have done quite well with APPL over the last 27 years,....and quite well in the past 7 months as well. The lateness of the iPad refresh is not a strategic problem; and earnings count as much or more than share, as does the software ecosystem and the through-put on the CPU.

    Filing a discussion here that has merely been cribbed from a Samsung PR document will not earn much respect in this forum.

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