Nearly every analyst following Apple (NASDAQ:AAPL) expects that iPhone sales will decline on a year-over-year basis for the first time ever this quarter (Apple's fiscal Q2). Some bearish analysts even think that Apple could report an iPhone sales decline for Q1 (the holiday quarter) when it releases its earnings results tomorrow. These worries have weighed heavily on Apple stock lately.
By contrast, year-over-year sales declines for the iPad are old hat by now. Apple reported its first iPad sales drop in July 2013. It wasn't a token decline, either -- unit sales fell 14% and iPad revenue plummeted 27% year over year that quarter.
iPad sales returned to modest growth in the second half of 2013. However, since then, Apple has reported year-over-year iPad sales declines for seven consecutive quarters. This trend probably continued in Apple's recently completed fiscal Q1.
Estimating iPad sales
In the 2014 holiday quarter -- Q1 of fiscal 2015 -- Apple sold 21.4 million iPads with an average selling price just under $420. That generated revenue of $9.0 billion. Unit sales were down 18% year over year, while iPad revenue declined 22% year over year.
Unit sales probably fell by double digits yet again last quarter. Collectively, the new iPads released this fall (the iPad Pro and iPad Mini 4) have seen slower adoption than the iPads released a year earlier (the iPad Air 2 and iPad Mini 3).
Based on Fiksu's usage data, the iPad Air 2 and iPad Mini 3 together accounted for 3.7% of all iPad usage by the end of December 2014. This time around, the iPad Pro and iPad Mini 4 only reached 1.8% of total iPad usage by the end of December. The usage data suggests that Apple may have racked up about 2 million iPad Pro sales and 3 million iPad Mini 4 sales last quarter, assuming a 1 million unit channel inventory increase.
Most people bought older iPad models last quarter, in line with recent trends. A recent U.S. survey by Consumer Intelligence Research Partners found that the iPad Pro accounted for 12% of all iPad sales during the quarter, while the iPad Mini 4 captured another 17% of sales. Models launched in 2013 and 2014 accounted for the other 71% of sales.
The CIRP survey used a fairly small sample size and only looked at the U.S. But based on that sales mix and the sales estimate for the new iPad models calculated above, Apple may have sold only 15 million iPads last quarter. Even if cheaper models were more popular outside the U.S. -- which seems plausible -- it seems unlikely that Apple sold more than 18 million iPads.
Time for a new iPad Air
In May 2015, I wrote that iPad sales would probably return to growth by the fall. However, that prediction began to look highly unrealistic after Apple failed to release an updated iPad Air for the holiday season.
Despite the swell of interest for the iPad Mini when it first arrived in late 2012, the vast majority of iPads in use are 9.7-inch models. All four iPad Mini models combined account for only 30% of iPad usage.
Furthermore, the installed base of 9.7-inch iPads is much older than the iPad Mini installed base. The first four iPad models -- i.e., everything before the iPad Air -- together account for 40% of iPad usage. This likely indicates a user base of 80 million to 100 million people. Most of these older iPads are ripe for replacement.
However, customers who have waited four years to replace their iPads probably weren't enthused by the idea of buying a model that was already a year old (the iPad Air 2). Apple may have left millions of iPad sales on the table last quarter by not having a new 9.7-inch model available.
That said, this replacement demand is just being deferred -- not lost. Apple could release the iPad Air 3 as soon as the spring, or it might wait until the fall. Either way, it is likely to benefit from significant pent-up replacement demand when the newest 9.7-inch iPad goes on sale. That should drive the iPad line's long-awaited return to growth.