How New iPads Could Boost Apple's Bottom Linehttp://www.fool.com/investing/general/2013/10/16/how-new-ipads-could-boost-apples-bottom-line.aspx Daniel Sparks
October 16, 2013
The invitations have been sent. Apple (NASDAQ: AAPL) will host an event on Oct. 22, when it is widely expected to unveil its next-generation iPads. As the company's second-largest product line by revenue (18% of total revenue), the refresh prompts an important question: Will the new lineup provide incremental upside in Apple's bottom line? Or is Apple doomed to tough comparisons, and the law of large numbers?
Apple is already struggling to compete against its year-ago self. No wonder Apple's priced so conservatively. Year-over-year revenue growth rates are decelerating and year-over-year EPS is declining.
And Apple's iPad segment seems to be part of the problem. In the company's most recent quarter, iPad revenue was down 27% from the year-ago quarter. Even worse, the product line's profitability is suffering. Though Apple doesn't report operating income by product segment, Apple CEO Tim Cook said during its 2012 fourth-quarter earnings call that the iPad Mini's profit margin is "significantly below our corporate average."
But there's hope
Even more, on a quarter-by-quarter basis, Apple investors should expect major fluctuations in year-over-year comps -- especially in Apple's iPad segment. This year's launch schedule doesn't compare well with last year's schedule at all. Last year, the most recent refresh to the iPad lineup was in March, making the lineup just about three months old by the beginning of the third quarter of 2012. This year, however, the last refresh to Apple's iPad lineup was on Nov. 2, 2012, making the product line nearly eight months old when the third quarter began -- a huge difference.
Going forward, comps for the tablet segment should be