Apple's (NASDAQ:AAPL) iPad sales have been underwhelming in recent quarters, with the company actually reporting year-over-year declines in unit sales for the last three quarters in a row. And a new report from International Data Corporation confirms that the overall tablet market is facing headwinds, citing longer than expected product lifespans as one of the key factors behind the tablet market's sudden slowdown. Can Apple's iPad sales rebound from their peak in 2013?
Examining the causes and symptoms
Worldwide tablet sales growth is down significantly in 2014, according to IDC. In 2013, IDC measured tablet sales up 52.5%, year over year. For 2014, that rate is likely to fall sharply to growth of just 7.2%, IDC predicts.
Apple's dominance in the tablet market, of course, means that the tech giant's tablet sales have a large influence on the overall performance of the market. Apple's 2014 iPad shipments, which IDC estimates to come in around 64.9 million, would be down 12.7% from 2013 shipments. At 27.5% market share of global tablet shipments, the poor year for iPad sales weighs heavily on total global sales growth. Slowing growth in tablet sales using Google's Android operating system, with year-over-year growth for 2014 predicted to come in at 16% (down from Gartner's estimate for 128% year-over-year growth between 2012 and 2013), confirms that the headwinds indicate a broader trend and not one related only to Apple specifically.
IDC suggests that the key driver behind the slowdown in the tablet market is clear.
"In the early stages of the tablet market, device lifecycles were expected to resemble those of smartphones, with replacement occurring every 2-3 years," explained IDC analyst Jean Philippe Bouchard. "But we also see tablet manufacturers trying to offset this price pressure by focusing on larger screens and cellular-enabled tablets. The next six months should be really interesting."
And, going forward, Bouchard predicts that this trend should continue to be a headwind in tablet sales: "[I]t seems clear that consumers can be expected to hold onto tablets longer than smartphones."
What this could mean for the iPad
It's definitely a possibility that Apple's iPad business peaked in 2013. The trend of longer than expected lifecycles for tablets will probably have an outsized impact on the lifecycles of iPads specifically. Apple's efforts to bring new software to older iPads means that owners of old iPads can still upgrade to new major software features every year, extending the usefulness of Apple tablets. The iPad 2, for instance, is eligible to be updated to Apple's latest mobile operating system, iOS 8.
But Apple CEO Tim Cook is still optimistic about iPads. Earlier this year Cook said that he was "very bullish about the tablet market" and that the "category as a whole is in its early days." Referring to Apple's iPad specifically, Cook said, "[T]here is also significant innovation that can be brought to the iPad and we plan on doing that."
Apple has since introduced the iPad Air 2 and the iPad mini 3. Investors will get a better idea of how these tablets are selling when Apple releases its fiscal 2015 first-quarter results in January. But considering the evidence of a declining iPad business in the last three quarters, investors shouldn't have high expectations for this quarter.
Indeed, KGI securities' well-connected Apple analyst Ming-Chi Kuo is predicting Q1 iPad unit sales will fall 40%, Apple's largest year-over-year decline in iPad sales ever.
But are the latest upgraded iPads the "significant innovation" Cook was referring to? There are ongoing rumors that Apple is planning a 12.9-inch iPad Pro for a 2015 launch. Could the iPad Pro reinvigorate Apple's iPad sales?
Whether or not Apple is able to pull off a surprisingly compelling upgrade to its tablet line in the near future or not, I'm increasingly convinced that 2013 may be the peak for Apple's iPad sales -- or at least near the peak. Fortunately, Apple's iPad business accounts for just 12.6% of sales. And likely soaring sales of Apple's iPhone on the success of the iPhone 6 and 6 Plus should help to dampen the negative effectslowing iPad sales could have on Apple's overall business. Apple's booming iPhone business accounts for a whopping 56% of sales and even larger portion of the company's profits.
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple, Gartner, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.