The consternation over Apple's iPad sales in the December quarter is reaching a fever pitch, but at this juncture it's unclear whether growth is merely pausing or something more serious.
Worries about iPad sales in the December quarter (fiscal first quarter) are actually leading some analysts to call for "some pricing stimulus" on Black Friday and beyond.
- Business Insider noted that Goldman Sachs analyst Bill Shope rang the alarm bells about iPad sales. Shope said that it's prudent to assume the iPad is seeing demand challenges. The Goldman analyst also argued that the iPad is overdue for a price cut. Overall, the iPhone is going to drive Apple's results.
- Barclays Capital analyst Ben Reitzes said in a research note that iPad sales are also worrisome. Reitzes noted that Apple's fiscal fourth quarter iPad sales of 11.1 million was weaker than the 11.7 million expected by analysts. Apple channel inventory was up 1.45 million units to 2.5 million. As for the first quarter, Reitzes said "we currently estimate iPad unit sales of 13.9 million for the December quarter, which may prove optimistic by 1-2 million units."
- Other analysts said that Apple will grow sequential iPad sales, but a lot rides on Black Friday sales.
The Amazon Kindle Fire effect. The Fire will be landing on doorsteps today and the $199 device could be disruptive. As I noted, the integration is done well and the Fire is a nice entertainment device. If you're watching specs, however, the Fire is lacking. It's quite possible that consumers are watching the word of mouth with the Fire before deciding on a $499 and up iPad. A Fire that's good enough can poach sales from Apple. Also see: Amazon's Kindle Fire: Snappy consumption, impulse purchase device | Kindle Fire vs. iPad heats up for holiday shoppers (survey)
Upgrade rumors for the iPad. It's likely that a new iPad will land in March of 2012. Anyone who can wait will. Reitzes had an interesting take on Apple's upgrade plans---think iPad 2S. He said:
Our research still points toward Apple continuing to innovate in the iPad category with an iPad 3 launching in the March timeframe with an HD screen, Siri integration and a faster processor. It is possible that Apple keeps the iPad 2 in the category as well. First, we expect a possible “iPad 2S” that includes a faster processor and Siri integration. Second, we believe that Apple will keep the current 16GB version of the iPad 2 in the line-up next year, using it as a lower-priced option to compete with new entrants. Indications in the supply chain around C1Q production patterns back these views, even though 4Q momentum has waned.
Meanwhile, an iPad 3 could be waiting to support LTE in the fall of 2012. In all cases, consumers know that it may not make sense to buy an iPad 2 right now.
It's time for "pricing stimulus," said Reitzes. Apple may simply need to cut the price on the entry level iPad. If $200 is the new benchmark for tablets and the Fire takes off---it just might---then Apple's iPad will look pricey. Frankly, it's amazing that Apple has been able to hold iPad pricing this long as rivals repeatedly stumble. Apple will keep the high-end and Amazon will take the low end. Can Apple really afford to cede the low end of the market to others? I'd argue that Apple will have to dabble in the low end just like it does with the iPhone.
Apple price cuts---if they are coming---would land in just a few days.
Add it up and Apple's iPad sales growth should be weaker than expected. Consumers are just being rational and trying to make the best buying decision they can. The big caveat is a lot can happen between now and Dec. 31 on the iPad sales front.