Apple (NASDAQ:AAPL) has officially sent out invitations to what is likely its annual iPad launch event. The event will take place next Thursday at the company's Town Hall auditorium at its headquarters in Cupertino, California at 10 a.m. Pacific Standard Time. If Apple really does show off iPads at the event, investors will be hoping the devices will be the answer to the company's declining tablet sales.
The general consensus in the Apple rumor mill is that in the company will introduce new iPads and Macs and roll out OS X Yosemite during the event. While surprises beyond this are unlikely, they are always possible. You can get a better rundown of what to expect at the event here.
Whatever Apple shows off during the event, iPads will almost certainly be the main item investors will be watching, as the important category is at a crossroads.
The state of Apple's iPad business
After the early years of skyrocketing iPad unit sales growth, Apple's second largest business has leveled off and, more recently, even declined. In the company's last two quarters, year-over-year quarterly iPad unit sales were down -- by 3.1 million units in Q2 and 1.3 million units in Q3.
While the recent decline in sales isn't a long enough trend to conclude that Apple's iPad business has peaked, it is enough to at least give the idea some consideration. After all, tablet sales for the entire global industry were down 9.7% in the second quarter, according to data from IDC, suggesting there is a negative secular trend in tablet sales. Of course it's worth nothing that Apple's sales in Q2 heavily influenced the overall tablet sales reported by IDC since iPads accounted for 32.4% of global tablet shipments.
But Apple CEO Tim Cook disagrees with the analysts trying to call the peak of iPad sales.
"We're very bullish about the future of the tablet market," Cook said during the company's third fiscal quarter earnings call. Even more, he hinted that the iPad models in Apple's pipeline for future release could be the source of his confidence. "And we're confident that we can continue to bring significant innovation to this category through hardware, software and services."
What could "significant innovation" in Apple's tablet business look like? We may find out next Thursday.
Cook cited several other factors during Apple's most recent earnings call that were the basis for his confidence in the company's iPad business: off-the-chart iPad customer satisfaction and opportunities for iPads in business and education.
A new concern?
Whether or not demand for Apple's iPads is officially a headwind for the company, it certainly has a new challenge stirring up: cannibalization from iPhone 6 Plus sales. With a display measuring 5.5-inches, the iPhone 6 Plus is officially a phablet. And phablets, according to NPD DisplaySearch, are one of the major drivers in the recent slowdown in tablet sales. This phenomenon makes sense. Consider the thought process that could play out for some Apple customers: "Why buy a new iPhone and an iPad mini when I could settle with an iPhone 6 Plus to take the place of both?"
While it's possible that iPhone 6 Plus sales could cut in to Apple's tablet business, such a trend could actually work out lucratively for the company. Not only does the iPhone 6 Plus start at a higher price than both the iPad mini and the iPad Air, but iPhones sales have generally boasted far higher profit margins than tablet sales.
Nevertheless, as Apple's second largest business, investors will be hoping Apple can truly serve up some "significant innovation" next Thursday that will reinvigorate the category that has served as one of Apple's most meaningful growth drivers in recent years.
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.