The Peak of iPad

The Peak of iPad

by Tay Wen Yi

Is the Apple’s tablet iPad fever now cooling down because it has already reached its peak? Or is it the whole tablet scenery that is receiving lesser interest than it used to have? Apple did great for their smartphone segment in the Q2, strong sales have been achieved as announced during the call few weeks ago. However, it didn’t do great as far as tablets are concerned.

Adam Satariano, a reporter for Bloomberg News in San Francisco mentioned on Bloomberg Businessweek that Apple (AAPL) has sold more than 210 million iPads since the device’s 2010 debut, about double the rate of iPhone sales in its first four years. Thanks to the boom of iPad, it has helped the electronics industry make up for the drop in sales of desktop and laptop PCs. Suddenly, though, the market is slowing down.

According to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker, worldwide tablet plus 2-in-1 shipments slipped to 50.4 million units in the first calendar quarter of 2014 (1Q14). Apple dropped from 40.2% of market share in the first quarter of 2013 to 32.5% in Q1 2014 , meaning the sales dropped by one-sixth last quarter from the same period a year earlier.

Tofel (2014) wrote on gigaom.com that one number stood out among the many numbers shared during Apple’s second-quarter results announcement, and it was 16.4 million. 16.4 million is the amount of iPads Apple sold in the last three months, down from the 19.5 million sold in the year ago period, and a big drop from the 26 million iPads purchased in the prior quarter.

Investors wondered what kind of explanation Apple CEO Tim Cook would give on the drop of iPad sales. And this is what Tim Cook said, “First, in the March quarter last year, we significantly increased iPad channel inventory, while this year we significantly reduced it. Luca will go into more detail about this later. Second, we ended the December quarter last year with a substantial backlog with iPad mini that was subsequently shipped in the March quarter, whereas we ended the December quarter this year near supply demand balance.”

Luca Maestri, Vice President of Finance and Corporate Controller then continued in the Apple F2Q 2014 earnings call transcript, “Turning to iPad, we saw 16.4 million units. As Tim explained earlier, our iPad results and the comparison to the March quarter last year were heavily influenced by channel inventory changes. Specifically, this year we saw 16.4 million iPads into our channels and sold through almost 17.5 million reducing our channel inventory by 1.1 million units.”

In shorter words, the reasons given by Tim Cook behind the slow up of iPad are inventory management and secondly, the holiday quarter last year ended with a backlog of iPad mini sales. This year, there was a supply and demand balance. A business's inventory is one of its major assets and represents an investment that is tied up until the item is sold or used in the production of an item that is sold. It cannot be considered as a good reason or bad reason that the Apple CEO has given but I’m quite surprised just like what Tofel (2014) said “I can’t think of another similar company that does a better job of managing its channel inventory than Apple.” Therefore, I think there are still other reasons that caused the sales drop of iPad and I will continue to talk more about them.

One thing I would like to ask everyone, do you upgrade your tablet as often as you upgrade your phone? I’m sure more than 50% of the answer I will get is ‘no’. Subramaniam (2014) stated in the article Apple struggling with iPad sales? Blame the damn phablets, “the upgradation time curve on tablets is also higher, as opposed to the smartphones, which means users are less likely to upgrade tablets over two-three years, but are more likely to do so with smartphones. And as smartphones get bigger, tablets keep getting more irrelevant. So it’s a vicious cycle and one that’s affecting Apple’s iPad sales.”

On top of that, Bonnington (2014) clarified in the article Apple Sales Numbers Show iPad Fever Is Officially Cooling that for majority of the people, the iPad they have is good enough. Unlike a phone, with significant new features like Touch ID, or a better camera, the iPad’s improvements over the past few years have been more subtle. We’ve seen improvements on the new iPad with the latest iterations featuring a better Retina display, a slimmer design, and faster processing. But are those features enough to justify a near thousand dollar purchase?

“In mature markets, where many buyers have purchased higher-end products from market leaders, consumers are deciding that their current tablets are good enough for the way they use them. Few are feeling compelled to upgrade the same way they did in years past, and that’s having an impact on growth rates,” suggested by research firm IDC on the tablet slow-down.

According to the article Tablet Sales Slow For First Time Since Apple’s iPad Release In 2010 by Suciu (2014), he explained that tablets and larger screen smartphones are also becoming more blurred, but an increasing number of consumers are not seeing a reason to replace existing devices. Since 2010 tablets saw growth as it was a new category, but as many consumers have purchased a device there is little incentive to replace it because they don’t think the subtle upgraded iPad is tempting enough for them to abandon their old iPad to get a new one which mostly of the features can be completed on their smartphones.

At the same time businesses have not widely adopted tablet devices as a replacement for traditional PCs, including laptop computers. Subramaniam (2014) said that besides smartphones, another strong competitor of tablet will be the PCs. PCs are seen as more powerful and are certainly a better option for gamers and professionals, than a tablet, which has nascent or woeful productivity support and less powerful hardware.

In The iPad Is a Tease from Jean-Louis Gassée’s Monday Note, former head of Apple's Macintosh division, filed three days before the results were announced: "Despite the inspiring ads, Apple's hopes for the iPad overshot what the product can actually deliver. Although there's a large number of iPad-only users, there's also a substantial population of dual-use customers for whom both tablets and conventional PCs are now part of daily life. I see the lull in iPad sales as a coming down to reality after unrealistic expectations, a realization that iPads aren't as ready to replace PCs as many initially hoped."

Anyhow, the CEO of Apple Tim Cook is still very confident with their tablet despite the slow-down of iPad sales in Q2 of 2014. He said, “we continue to believe that the tablet market will surpass the PC market in size within the next few years and we believe that Apple will be a major beneficiary of this trend.”

As a columnist, I consider myself as a more traditional person. Not in other ways, but the digital devices that I’m using. I’m a laptop person and I prefer typing everything on a keyboard, it makes me feels more organized and concentrated when accomplishing my work. But I do look forward to what Apple will bring in in the future. Maybe I might switch to a tablet person when the next iPad is launched? We’ll see.