Apple's (NASDAQ:AAPL) iPad business may not be as important to the tech giant's results as its iPhone business, but at 12.6% of the tech giant's total sales, it's big enough to matter. In fact, for 13 quarters in a row Apple's iPad business was providing more revenue for Apple than its Mac business, making the segment the company's second largest. But a slowdown in iPad sales growth, which has recently turned into year-over-year declines, is bringing the category's prospects under scrutiny.
No longer is Apple's iPad business its second largest. Last quarter, a continued decline in iPad sales meant the segment gave way to Apple's Mac business. And, from here, it's not entirely clear whether Apple's iPad business will ever see consistent year-over-year growth again.
The headwinds facing Apple's tablet business
There are three key problems that seem to be preventing Apple from growing its tablet business: market saturation, the rise of larger smartphones, and a growing lifecycle for the iPad.
1. Market saturation
Since the launch of the iPad in 2010, Apple has lead all manufacturers in global tablet sales. Even after Samsung, Asus, and Lenovo aggressively entered the tablet market with much cheaper versions, Apple's lead continues. In the third calendar quarter of 2014, Apple captured 29.2% of global shipments, according to estimates from IDC. Second-place Samsung was nearly 10 percentage points behind, at 19.3%.
Given Apple's premium price points, it's easy to see why growing sales from here could be challenging -- especially with the global tablet market, as a whole, showing slowing sales growth.
2. The rise of larger smartphones
Smartphones with displays 4.7-inches and larger are becoming increasingly popular. While this trend began with Android devices, even Apple has joined the party. With Apple's most recent iPhone models, the iPhone 6 and iPhone 6 Plus, the company ditched its 4-inch display size for larger 4.7-inch and 5.5-inch screens. The popularity of these larger phones is blurring the lines between tablets and phones, sometimes making a larger phone a suitable substitute for a tablet.
3. A growing lifecycle for the iPad
During Apple's fiscal fourth-quarter earnings call, CEO Tim Cook said the iPad's lifecycle is extending. With owners willing to own their iPads longer, this obviously means a smaller percentage of Apple's existing customer base may be willing to upgrade to new devices in the future.
But there are still potential sources of hope for the iPad line, mostly related to growth opportunities in the enterprise market.
Apple's popularity with enterprises in tablets means that Apple may have upside potential as the market continues to grow. A recent study by Piper Jaffray (via AppleInsider) pegged the enterprise market's tablet penetration at just 18%, showing plenty of room for sales growth. The survey also provided more evidence of Apple's dominance in the corporate market for tablets, with 78% of surveyed companies offering support for iOS. There have been rumors that Apple is working on some sort of "iPad Pro," which could be aimed at this key, underpenetrated market.
Then, of course, there's Apple's surprising partnership with IBM, announced last year, meant to offer better mobile enterprise solutions. This partnership should help Apple solidify its leading position in the enterprise tablet market, and hopefully give Apple a greater chance at capturing any market growth.
Even if tablet sales for enterprises continue to grow, however, it may not be enough to combat the headwinds the global tablet market is facing.
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and International Business Machines. 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.
More from The Motley Fool
Lots of Potential Uses for Apple's Cash Haul
Recent changes to the U.S. tax code will result in Apple bringing a boatload of cash back from abroad. What will the company likely do with it?
Apple Earnings: Looking for More Growth
Mark your calendar: Apple earnings are just a few weeks away. Here's what investors should know.
A Foolish Take: Streaming Music's Staggering Growth
Americans are streaming songs instead of buying them.