What Can Apple, Inc. Do to Boost Slumping iPad Sales?

Source: Apple.

Apple's (NASDAQ: AAPL  ) tablet business is in a rut.

At least that's what legions of financial analysts and journalists would have you think.

Now, this stance is by no means unfounded. After reporting two consecutive year-over-year declines in iPad shipments in its two most recent earnings releases, a healthy dose of skepticism about Apple's tablet business seems justified.

That being said, dismissing the health of Apple's iPad business altogether would be a mistake. In fact, I believe Apple's tablet business will enjoy a much-needed uptick in the months ahead. The most obvious evidence for this argument is, of course, Apple's upcoming iPad refresh. However, there are a number of other opportunities that should prove a boon for iPad sales.

Here are three of them.

1. Enterprise expansion
Thus far in its existence, the iPad has largely been a consumer device. The iPad's relatively untapped enterprise opportunity has received plenty of attention in the wake of Apple's historic deal with enterprise IT behemoth International Business Machines in July, and for good reason.

It's always been slightly challenging to gauge just how substantive an opportunity set Apple enjoyed in the enterprise space, but the evidence suggests it's certainly robust enough to prove exciting for Apple investors.

 

2013 Tablet Shipments

2017 Tablet Shipments*

CAGR

Total

217.1 million 

368.3 million 

14%

Enterprise

23.9 million

66.3 million 

29%

Sources: Forrester Research and IDC.

According to Forrester Research, only 11% of total tablet purchases came from enterprise-level customers last year, a number that's expected to grow to 18% of total tablet sales by 2017. That might sound somewhat underwhelming, but keep in mind that Apple shipped only 71 million iPads last year. If Apple could gain a meaningful share of the enterprise market between now and 2017, it doesn't take an overly active imagination to envision the growth implications this could hold for its iPad business.

2. Education
Apple has gone to great lengths to broadcast its dominance in this still-budding vertical. On its FY Q4 2013 conference call, Apple CEO Tim Cook bragged that Apple controlled 94% of the U.S. tablet education market, setting a then-record of $1 billion in total education-related sales in a single quarter. Fast-forward to its most recently reported quarter, and Apple management claimed that it had significantly expended its total iPad shipments to the education market from 8 million last year to 13 million currently. Like the broader corporate world, it's clear that Apple has another significant moneymaking opportunity in its efforts to put its tablet in classrooms the world over.

However, it's also a market segment that's quite challenging for evaluating the exact size of Apple's market opportunity. Like the tablet market in general, Apple established an early lead against the rest of the field. However, the competition has narrowed the gap versus the iPad and scored some symbolic wins against Apple. In late June, the Los Angeles Unified School District (LAUSD) partially reversed its much-discussed decision to feature Apple's iPad as its exclusive tablets. The new decision opened the door for students to instead opt for several Microsoft Windows or Google Android-based tablets. And in the latest blow to Apple's educational efforts this week the LAUSD officially suspended its iPad contract with Apple after reports of apparent impropriety between key LAUSD officials and Apple surfaced.

So while Apple's iPad appears likely to remain the most dominant device in the budding realm of tablet education, Apple will clearly have to continue to battle against other major tech players in this growth market in the years ahead.

3. Technological enhancements
There's certainly a case to be made that the iPad stands to disproportionately benefit from the introduction of new features and/or technologies. Unlike the smartphone market, where carriers create incentives to upgrade every two years, the tablet market for the most part lacks this key sales support mechanism. This dynamic clearly contributes in a big way to the tablet market's generally longer refresh cycle relative to smartphones. The implication here is that by introducing substantial product improvements, Apple could potentially entice older iPad users to upgrade to an updated version. This, combined with ongoing exposure to first-time tablet buyers, could certainly serve to reinvigorate Apple's ailing tablet business.

The difficulty, of course, becomes predicting exactly which enhancements Apple plans to include in its upcoming iPad refresh. Much of the reporting on the topic is highly speculative and should be taken with their requisite grain of salt. However, reliable news services have reported that Apple plans to incorporate an improved anti-glare material to the screen of the upcoming iPad, along with deeper integration of Apple's fingerprint sensing technology.  

These details alone might not prove significant enough to trigger the aforementioned product refresh cycle. As is also the case with the iPhone, Apple will need to continually innovate on the product front to maintain its loyal customer base. However, as I've hopefully proved, Apple enjoys a number of drivers that could also serve to bolster its iPad business in the months ahead.

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