Is the Apple iPad Due for an Upgrade?

After several years of the iPad-induced "post-PC era" that Apple (NASDAQ: AAPL  ) seemed quite bullish on, it's starting to look as though the shoe is on the other foot. This quarter, Apple's iPad sales plummeted 9.2% on a year-over-year basis. That's two straight quarters in a row of year-over-year declines. 

On the flip side, Apple saw its Mac unit shipments grow 17.6% year over year and revenues grow 13.2%, bucking the "death of the PC" trend. Some of the sales growth came from more aggressive pricing, though, and admittedly, a good chunk of what we're seeing here is share gains against Windows devices.

Still, with iPad sales continuing to shrink, and with PC and Mac sales seemingly stabilizing, is it time to declare the iPad and, more generally, the tablet computer obsolete?

A little bit of background
Over the past couple of years, PC sales have been fairly weak, driven in no small part by the introduction of the iPad (and various clones). The device offered a thin, light, and very well thought out touch-based computing platform -- and for a time it made up Apple's fastest-growing product category.

Apple's iPad Air. Source: Apple. 

In contrast, when the iPad launched in 2010, the majority of PCs were bulky, sported poor battery lives, and were often loaded with bundled software that got in the way of the user experience. Naturally, as consumers found that they could shift more of their basic tasks -- such as monitoring email, surfing the Web, and watching videos -- from those awful PCs to iPads, they started to do so, driving consumer PC weakness throughout 2012 and 2013.

iPad faces a flurry of tablet-based competition
As Apple saw its iPad sales skyrocket, others saw an opportunity to exploit this fast-growing category. A flurry of competition from hardware vendors using Google's Android operating system started to flood in. Though these early efforts were lackluster at best, they have evolved over time to be quite solid, particularly at the low end.

Samsung's Galaxy Tab S. Source: SamMobile.

At the high end, where Apple plays, Samsung has been the most aggressive, with its rapid product cycles bringing to bear features that in some respects outrun Apple's very best iPads. For example, the recently launched Galaxy Tab S family sports higher-quality displays than either the iPad Mini with Retina Display or the iPad Air. The Galaxy line also comes with fingerprint sensors and a thinner chassis.

In an unsubsidized world, replacement cycles are long
Though Apple saw explosive growth in the iPad when the category was new and the competition minimal, the reality is that the market for consumer consumption devices that begin at $299 unsubsidized and scale all the way up to $929 (for the 128 GB iPad Air with a cellular connection) is unlikely to grow at huge rates over time.

In addition, users are more likely to want to hang on to these relatively expensive tablets for longer than they would a phone that effectively costs around $199 to replace every two years on contract.

Is the PC taking back wallet share?
A final point, and one I alluded to at the beginning of this article, is that PCs may simply be winning back consumer wallet share from tablets, with the iPad particularly vulnerable, as pricing for these products falls pretty well into mid-range notebook price bands.

Intel's Broadwell will make PCs even more tablet-like. Source: Intel via Liliputing.

It seems pretty clear at this point that an iPad Mini or an iPad Air isn't a suitable replacement for a full-blown PC or Mac. Further, thanks to Intel's (NASDAQ: INTC  ) Ultrabook initiative, which was more or less a program to get OEMs to copy the MacBook Air, the build-quality and battery-life issues have largely gone away -- and with Intel's next-generation Broadwell chip, laptops will begin to see a mass shift toward fan-less designs.

Now, they both seem to share a similar and growing pool of dollars from consumers, so if a year is characterized by a large tablet upgrade cycle, consumer PC sales growth may suffer. Conversely, in a year where consumer PC users upgrade en masse, iPad and premium tablet sales may suffer.

Apple also needs an iPad refresh
In addition to the competitive pressures and a potential wallet share shift back to PCs, Apple's iPad lineup is in need of a refresh.

iPad Air compared with a dummy model of the next-generation iPad Air. Source: Jonathan Morrison.

With competitor Samsung's tablets offering devices that have better display quality, fingerprint scanners, and thinner chassis, the competitive landscape has never been tougher for iPad. Further, given that these are consumption devices, the performance requirements of most applications probably aren't scaling up well enough to instill a sense of urgency to upgrade to one of the current models.

Apple needs new iPads with fundamentally game-changing features, like Touch ID, before customers will be willing to drop the big bucks on iPad upgrades.

Foolish bottom line
Do the ugly year-over-year declines from iPad signal the obsolescence of the iPad and perhaps tablets in general? No. However, they do signal that Apple needs to give the existing installed base of customers an upgrade.

The next generation of iPads can't come soon enough. 

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.


Read/Post Comments (6) | Recommend This Article (2)

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 July 27, 2014, at 10:56 AM, AceOfSaves wrote:

    I hate to bring this up (because I love TMF) but is there an editing problem at The Motley Fool? I've been noticing a lot of misspellings, typos, grammatical errors, etc. recently when they weren't as prevalent before.

    I see a couple in this article alone. The description to one of the images mentions "...next=generation iPad Air" which I think should be "...next-generation..." (with a dash instead of an equal sign).

    In the disclosure, the statement about TMF owning shares of Apple, Google and Intel is repeated in the same sentence.

    Recently, I received an invitation and a free preview for Supernova. When I followed the link to the Supernova introduction site, I noticed that it was littered with the same errors I had mentioned earlier and made it hard for me to read. I was honestly shocked to see that it was so poorly edited because that is not a good way to represent your product when you're trying to entice potential subscribers.

    I know that The Motley Fool is hiring more people and I hope that some of those will be editors.

    Otherwise, I love everything else about this site! (Well, maybe less product-pushing, lol).

    Fool on!

  • Report this Comment On July 27, 2014, at 11:10 AM, TMFAeassa wrote:

    Hi AceOfSaves,

    Thanks for the catch! I'll have it fixed ASAP.

    Fool on!

    --AE

  • Report this Comment On July 27, 2014, at 6:27 PM, Chiam wrote:

    AE,

    Apple's Mac/Ipad line offers a seesaw approach. One or the other will do well based on the current desires of consumers. You did not mention the deal with IBM to bring iPads into the enterprise.

    Also, sales of iPads will continue to slow and the ASP will drop. But Apple will continue to upgrade them each year and put more features in them.

    Remember several things.

    1. iPads and iPhones have much better resale values. A 2 year old Galaxy 3 vs a 2 year old iPhone 5. One gets $ 88 and the other $ 280 from Usell.

    2. As people keep their products longer, they may spend more on them when they buy them knowing they will have it a long time. Thus they might buy Apple more.

    3. You have laptops that try to be both tablet and laptop. You might see the iPad try to tackle more laptop functions. Again this could be what happens with the IBM deal.

    4. Halo effect might sell many more tablets when the sales of iPhones pick up when the model 6 comes out. The order numbers are much higher.

    5. If the watch comes out, this halo effect will grow. If you have a watch measuring your health you may want to have an iPad in the house so it can work with the watch. Especially if your health issues are critical.

    6. Beats speakers will find itself into iPads. Beats will be improved with Apple's involvement and purchasing prowess.

    7. There could be game changing innovation in Apple products coming so you just can't count them out.

  • Report this Comment On July 27, 2014, at 8:38 PM, Mentallect wrote:

    MAC and IPad sales were cyclical, and now there is so much overlap, I am uncertain about which is grow or fade, but if Apple opens up its closed system, the skies the limit.

    I would love a 12 inch iPad with optional keyboard for when I travel, but only if the IOS opens. I have purchased an iPad 3 and Air, but no more being locked in.

  • Report this Comment On July 27, 2014, at 9:14 PM, VernDozier wrote:

    Yeah, I think Apple needs to develop some new features into it's next iPad. The "Find My iPhone" and free iCloud has done wonders to ensure users are unable to resell their phone.

    Apple should make something similar for iPads.

    If Apple can limit iPad sales to have very little resale value, the stock will go up.

    So the next time you upgrade your apple device, leave iCloud on. Once you have the person's money, login to iCloud online, and flag it as stolen.

    This way, Apple customers who thought they were getting a deal will be forced to purchase a new device, and Apple's stock will go up due to sales.

  • Report this Comment On July 27, 2014, at 11:15 PM, zippero wrote:

    As iPads get more powerful (and they will), they will come with onscreen tactile keyboards, and this will replace PC's entirely. You haven't seen anything yet.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3040666, ~/Articles/ArticleHandler.aspx, 9/17/2014 9:45:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement