When it comes to Apple’s marquee products, theiPad will always play second-fiddle to the iPhone, consistently getting new features a year late. Yet it’s a new version of the iPad that will likely take the spotlight on Thursday.
Apple is expected to unveil a new version of itsiPad Air tablet that is thinner, lighter, faster, includes an anti-reflective screen and has the option of a gold model. It’ll also have a TouchID sensor that will work with the company’s upcoming Apple Pay mobile payments system.
But minor tweaks to the iPad Air may not be enough to reverse sliding sales, underscoring the wider reality that consumers just aren’t buying as many tablets anymore. Larger screen smartphones — including the iPhone 6 and iPhone 6 Plus — are eating away at the need for a tablet. And while the iPad remains a top seller, it hasn’t radically changed since the first model in 2010. Unlike smartphones, which get replaced every two years or less, consumers are happy holding on to their iPads for much longer. And that’s a problem for Apple.
“The industry kind of set its expectations wrong about iPads,” Gartner analyst Van Baker said. “Everyone assumed the tablet was kind of like the phone, so the upgrade cycle would be like the phone. That’s not true.”
Apple generates most of its revenue — nearly two-thirds — from the iPhone, but it still needs other strong products. After all, the iPhone can’t continue its explosive growth forever. It’s unlikely the Apple Watch will be enough to move the needle any time soon. The computer industry has been slowing for years, and the iPad, long Apple’s No. 2 product, is starting to look like it’ll follow that fate.
Apple declined to comment.
Just how long one can go before buying a new iPad is unclear — the first iPad hit the market in April 2010, and about 14 percent of iPads currently in use in the US still are that model, according to Kantar Worldpanel. Most iPads — 32 percent — are the iPad 2. The iPad Air, Apple’s tablet introduced a year ago, comprises only 9 percent of iPads in the US, the firm said.
The majority of people in the Apple ecosystem hand down their older iPads to relatives or friends when they’re done with them, according to Carolina Milanesi, an analyst with Kantar Worldpanel. And many people also share their new iPads with other family members. That’s very different from phones, which often are traded in for newer models and are more personal devices.
“Everyone wants a phone, and everyone wants their own phone,” she said. “Tablets are different.”
By 2018, a tablet’s typical lifetime will be three years, according to Gartner. Tablet sales will continue rising, but the growth rate “is slowing quickly,” the research firm said. This year, sales of tablets will increase 11 percent to 229 million units, the firm said. Last year, industry sales jumped 55 percent.
The iPad remains the best seller on the market. In the second quarter, the iPad’s market share totaled 27 percent, according to IDC. Samsung, which ranked No. 2, had 17 percent share.
Still, iPad sales have been erratic over the past several quarters. Apple posted its biggest period ever in last year’s holiday quarter ended December 28, with sales of 26 million iPads. However, that’s one of only two quarters (out of the past six) that iPad demand rose. In the fiscal third quarter ended June 28,iPad sales dropped 9 percent to 13.3 million.
The declining shipments have made the iPad fall as a percentage of Apple’s total sales in the past couple quarters. In the fiscal third quarter, Apple generated $5.89 billion, or 16 percent, of its revenue from the iPad. A year earlier, 18 percent of its overall sales came from the tablet. The company won’t report its most recent quarter of sales until Monday, several days after the product unveiling.
At the same time, Apple’s Mac revenue has actually risen — despite concerns early on that the iPad and other tablets would obliterate computer sales. In the fiscal third quarter, Apple generated $5.54 billion in sales from its Mac line, making up 15 percent of sales.
Is slowing growth predetermined?
In actuality, there’s probably not much Apple could do to the current iPad to get customers to flock to stores beyond making some major, must-have features exclusive to the newest device. The new iPad Air isn’t expected to boast any earth-shattering features.
Instead, Apple may have to live with slower growth. The iPhone 6 Plus, Apple’s 5.5-inch phone-tablet hybrid, likely will eat away at some iPad sales as it appeals to people wanting to carry only one device. But so far, Wall Street seems placated by the strong iPhone sales.
“People are buying Apple products in huge numbers, though perhaps not going up in the case of the iPad,” Current Analysis analyst Avi Greengart said. “But if you have to stabilize at a level, wouldn’t you want to stabilize at this level?”
Rather than the consumer, Apple will increasingly lean on emerging markets and its push with business users and in schools to boost iPad sales. Already, most of the Fortune 500 companies use Apple products, but there are still a lot of ways the company could generate more money from business users.
It reached a deal with IBM in July to work together on pushing Apple devices and iOS apps with business users. IBM’s cloud computing services — such as device management, security and analytics — also will be optimized for iOS. Apple a year ago also made its iLife and iWork software free with new Mac and iOS purchases. And Microsoft in March finally made its widely used Office software work on iOS.
Many enterprises have been scooping up hybrid devices that convert between tablets and PCs. Apple doesn’t offer such a device, and it doesn’t look like it will make a hybrid product anytime soon. CEO Tim Cook two years ago famously compared it to combining a toaster and a refrigerator.
Introducing a bigger screen, 12.9-inch tablet, dubbed the iPad Pro, could attract a whole different range of customers, particularly business users. That device isn’t expected to hit the market until next year, however. By that time, Apple would have missed the key holiday selling season.
For now, it will have to hope the additions to the new iPad Air are enough to turn a few heads.
“They need to give people a reason to buy an iPad again,” Jackdaw Research analyst Jan Dawson said.