In its most recent quarter, Apple shipped 14.6 million iPads, down from 19.5 million in the previous quarter. The tablet market saw its growth rate drop off in the second quarter. One major reason for the slowdown is that Apple hasn't outlined a new iPad yet.
Reitzes painted a picture of Apple's iPad challenge:
Unlike the iPhone, the iPad clearly has the Flu – and a bit too soon. Last quarter, Apple reported iPad unit sales of 14.6 million in its F3Q13 (-14% y/y, -25% q/q) – much lower than our estimate of 18 million. Apple ended the quarter with 4.1 million units in channel inventory - within the company’s target range of 4-6 weeks. We estimate that iPad ASPs were down about 3% q/q, reflecting the impact of the lower priced iPad mini and weakness in large iPads. In this business, Apple faced a difficult compare vs. last year when it released the iPad with retina display. While white box and Samsung products played a role in hurting sales, perhaps another reason is that the iPad is being cannibalized by larger screen smartphones that can act as a tablet as well. Even with new products iPad demand could lack upside in future quarters given a lack of new functionality.
What's the fix?
Reitzes argues that Apple needs a strategy to target enterprise sales. If Apple could develop new use cases, focus on business applications for analytics and revenue generation and market well, the company could make the iPad more than a PC replacement. Reitzes added:
We believe Apple could also start to regain share in the enterprise with iPad on a steady basis if it were to focus more on it – like it does with the iPhone. We are not talking only about PC replacements - we mean innovative thinking around new use cases that can drive sales, collect data for analytics, manage inventory better, and lower costs. We believe that the “new applications” market for iPads in business could top 100 million units over time – about the size of the corporate PC market – at least $40 billion in size.
As previously noted, selling new tablets is going to be increasingly tricky unless there's a business model akin to Amazon's where it sells devices at break even and makes up the difference with e-commerce. In developed markets, most folks who want a tablet already have one. These folks may even have two or three tablets.
The moat for Apple's iPad franchise could easily be its enterprise traction. CIOs like the iPad and have it deployed in many companies. With better use cases and real focus, Apple could get a lot more traction. Perhaps it's time for Apple to rely on the backdoor to the enterprise and focus on the front door and the CXO suite.