Just How Big Can the iPad Get?

Reports of an iPad mini launch are heating up, with new renderings, supply chain leaks, and worries over "yield issues" constraining launch supplies all hitting the rumor mill this week.

In the end, it looks like the launching of a smaller iPad before the holidays is all but a given. To help investors sort out the opportunity iPads add to Apple's (AAPL +1.58%) business, we've created an iPad report as part of our Apple premium report service. Following is a sample of the new iPad report that will be delivered to subscribers next Wednesday. We hope you enjoy it.

The iPad: A tale of three markets
Investors must fight the tendency of thinking that the smartphone and tablet markets are reflections of each other, because they're not. Their similarities are only skin deep, while strategically and competitively they couldn't be farther apart.

In smartphones, Apple was a latecomer that revolutionized the industry; it was far from the first entrant. Palm (now swallowed and regurgitated by Hewlett-Packard). Research In Motion. Nokia. Motorola (now swallowed and being digested by Google). These were among the first major players in the smartphone revolution. They were iVictims in every sense of the word, but the tablet market is playing out in a totally different way.

The tablet market more closely resembles another market altogether: the MP3 music player market. With the iPod, Apple reinvented a product category that lacked leadership and over the past 11 years has maintained hegemony, with over 70% market share currently. It set the standard for what a MP3 music player should be. To this day, rivals still cannot compete meaningfully, while many have failed trying, including Microsoft (MSFT +0.25%) and its Zune player.

The iPad has redefined the tablet market in an almost-identical way to how the iPod shaped the MP3 music player market. Even the market-share figures bear an uncanny resemblance, with the iPad boasting 70% of all tablets sold. This is the magnitude of the opportunity we're looking at. If history repeats itself -- which, by all accounts, it's in the process of doing so far -- then Apple could be looking at over 10 years of incredible growth driven by global tablet adoption.

And make no mistake: We are absolutely talking about a very global opportunity here. International unit sales have steadily risen over the past 2.5 years, starting at just 30% during its launch quarter. In the most recent quarter, two-thirds of all iPads were sold abroad. This is a testament to Tim Cook's supply chain and operational prowess.

Sources: SEC filings and court filings.

Even now, despite Apple's heavy emphasis on the consumer market, the iPad is seeing adoption in other niche sectors like education and health care, among many others. The enterprise segment is also embracing the device with open arms, with 94% of Fortune 500 companies either testing or deploying it. The tablet market remains in its infancy, and it's going to be a long time until it's grown up. In the meantime, we're talking about billions in profits for Apple.

Last but not least
The three most revolutionary products that Apple has released thus far have been the iPod (2001), iPhone (2007), and iPad (2010), in that order. Each one has been a phenomenal success that has helped drive Apple to new heights. Even though the iPad is less than 3 years young, it is by far Apple's fastest-growing among these three in terms of both unit sales and revenue.