Apple recently released its latest financial results, and it was clear that sales of the iPad had fallen once again. The technology press jumped on the results and the usual slew of "is the iPad doomed?" type articles proliferated across the Web.
But I think that the slowing of iPad sales is not something that Apple needs to worry about over the long term. I believe that the iPad has a very bright future indeed.
Before I tell you why, here's the relevant section about iPad sales from Apple's financial results:
IPad shipments dropped 23 percent to 12.6 million, marking the fifth straight quarter of year-over-year declines. Analysts had predicted a 17 percent drop.
With the larger-screened iPhones and new Macs, Apple has seen a cannibalization of iPad sales, Cook said.
“We’ve never worried about that,” he said. Cook remained positive on the device’s future. He noted investments in the product, potential corporate sales and that data in places such as China suggests the market isn’t saturated with iPad owners.
Tim Cook is quite right not to worry about the decline in iPad sales for the following five reasons:
1. IBM's partnership with Apple
Much has been made about Apple's decision to work with IBM in the enterprise. With IBM providing mobile apps and Apple providing the hardware, Apple may end up reaping a huge windfall in sales of iPads (as well as iPhones and perhaps even the Apple Watch).
But for now it's too early to predict exactly how the Apple and IBM partnership is going to play out. My guess, however, is that it helps spur iPad sales in a very significant way over time (particularly if Apple releases a larger-screen iPad Pro device at some point).
2. The longevity and durability of the iPad
There's no question now that iPad owners simply do not upgrade their iPads as often as iPhone owners upgrade their phones. We've seen this phenomena happening for a while, and I actually think it speaks very well indeed of the quality and longevity of iPads.
When you buy an iPad, you can hold onto it for a long time. It will work and it will work very well even two or three years after you buy it. This is something that Apple should actually be very happy about since it helps bolster the company's reputation for producing quality devices that last a very long time.
3. iPhone 6 Plus cannibalization of iPad sales might be a good thing
There was much rejoicing when Apple finally decided to release larger screen iPhones. The iPhone 6 and the iPhone 6 Plus both offered a much-needed alternative to the smaller screen iPhones that preceded them. However, some Apple customers may have decided to simply opt for the iPhone 6 Plus instead of buying an iPad.
The desire to own just one device instead of two is something that seems more common in countries like China than in the United States. But it definitely exists, and I'm sure Tim Cook and his crew were very well aware of it before they released the large screen iPhones.
But the good thing about this is that iPhone 6 Plus owners will probably upgrade their devices every two years or so. So even if they don't buy an iPad, Apple will still benefit financially from their more frequent upgrades.
4. The entire tablet market is in decline, but Apple still leads
It's not just the iPad that has seen a sales decline, the entire tablet market itself has seen slowing sales. But the good news for Apple is that the company still leads in tablet sales, and that's not a bad place to be at all.
See this snippet from IDC's report about the tablet market:
Worldwide tablet shipments recorded a year-over-year decline for the second consecutive quarter in the first quarter of 2015 (1Q15). Overall shipments for tablets and 2-in-1 devices fell to 47.1 million in 1Q15, a -5.9% decline from the same quarter a year ago, according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker.
Apple still leads the overall market despite five consecutive quarters of negative annual shipment growth. Apple shipped 12.6 million iPads in the first quarter, capturing 26.8% of the market in volume and declining -22.9% when compared to 1Q14. Samsung (19.1% share) maintained its second place in the market despite a -16.5% decline in shipments compared to the same period last year. Lenovo (5.3% share), Asus (3.8 %) and LG (3.1%) rounded out the top 5 positions. LG's year-over-year growth was notable as it continues to benefit from U.S. carriers' strategy to bundle connected tablets with existing customers.
So it's pretty clear that Apple isn't alone in terms of declining tablet sales. It's just something that the company is going to have to ride out in the short term. At least they are in a stronger position that some of their competitors.
5. China will fuel iPad sales
Apple has taken great care to position itself for success in China, and that work will stand it in good stead in terms of iPad sales in the future. Tim Cook did not hesitate to bring up China during Apple's latest earnings call:
Inside Apple’s earnings report were several financial details that underscore just how important China has become to the company. Apple delivered blowout growth of 71% in the latest quarter in the greater China region, which includes Hong Kong and Taiwan. Apple’s iPhone 6 is clearly catching on in China, and sales there are now more important than in Europe, and may soon eclipse the U.S. as its most important market in the world.
On Apple’s conference call Monday, Apple CEO Tim Cook made special mention that the company’s iPhone 6 is being bought in droves by China’s growing middle class. McKinsey and Company says that 75% of urban consumers in China will earn between $9,000 and $34,000 per year by 2022, plenty enough to buy a smartphone. By 2022, there are expected to be 630 million members of China’s middle class, twice the population of the entire U.S.
Cook also described Apple’s growth arc in China in the coming weeks and months. Cook said Apple is now in “many more cities than we were before” and plans to increase the number of stores it has in the greater China region from 21 now to 40 by the middle of 2016. Cook also said Apple’s online store in China saw a three-fold increase in revenue and that it will be available in 365 Chinese cities by the end of this quarter to ship MacBooks, watches and tablets.
So the numbers in China look very good for Apple, and the company is really just getting started there. As the Chinese middle class grows, sales of Apple products should increase as well. The combination of the two bodes well for the iPad and all of Apple's other devices.
The iPad will live long and prosper
Despite its recent decline in sales, I still think the iPad has a bright future. Things like Force Touch, an iPad Pro with a larger screen, and other new technologies and device options and configurations could spur iPad sales and upgrades in the years ahead.
I have no doubt that Apple is working hard on future versions of the iPad. For now though we have to be patient while those changes and additions happen quietly in the background. The iPad is still a very young tablet, and it's best years may still be ahead of it.
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