Goldman Sachs analyst Bill Shope released a somewhat troubling report on Sunday for Apple bulls, saying demand for the iPad is fading.
He’s not adjusting his estimates for iPad sales, but he does think Apple will have to do something to address the first hiccup in the iPad’s growth.
Here is the key paragraph on demand, we’ve bolded the key phrase:
…the new Hon Hai forecast implies more limited upside to iPad units, which is disappointing for a December quarter. While improving holiday demand into late November could certainly push the momentum in the other direction, we believe it is prudent to assume the iPad is facing some near-term demand challenges. We believe there are several factors driving this pressure, but we also believe these issues are temporary and will likely be solved by three key factors in early 2012: (1) the continued adoption of iCloud, (2) the launch of Siri on the iPad, and (3) the addition of lower price points.
Shope says the iPad could be getting hit with growing pains. The iPad has ramped much faster than the iPhone, or the iPod, with almost zero catalysts to drive growth.
The iPod benefitted from the iTunes music store, as well as the addition of iTunes for Windows. The iPhone had price cuts, 3G, and an App Store to drive growth.
Shope thinks the iPad is “overdue” for a price cut to drive the next phase of growth:
Price cuts have also been critical, and the iPad is overdue. While the rapid ramp of the iPad installed base is remarkable by any metric, it is even more remarkable when we consider the fact that it has occurred without any change in pricing or storage capacity. Indeed, the iPhone enjoyed several major retail price cuts in its first year. The 8Gb version of the first iPhone saw its retail price slashed from $599 to $399 in its first three months on the market. Apple further improved affordability with the shift to a subsidized pricing model in 2008, bringing the price for an 8Gb iPhone down to $199 (with a two-year contract). Similar price cuts occurred with the iPod throughout its existence, and both the iPhone and the iPod saw storage capacity increases with each product refresh. In contrast, the launch of the iPad 2 saw no increase in storage capacity across the SKUs and no price change.
Apple is unlikely to leverage carrier subsidies for the iPad anytime soon, largely due to the popularity of WiFi-only models. Nevertheless, an outright price cut at the low end and the possible introduction of a low-capacity iPad 2 line once the iPad 3 is released could stimulate demand considerably without any substantial margin compression. In fact, a sub- $400 iPad 2 with 8Gb of capacity could further limit the competitive prospects of Android tablet vendors in 2012 and attract more cost-sensitive consumers amid the currently depressed macroeconomic environment. This could also further accelerate Apple’s already impressive momentum in emerging regions such as China.
Despite all this, Shope is maintaining his estimates for the quarter’s iPad sales. He’s also expecting Apple to sell 30.3 million iPhones, a record, and a 77% jump over the third quarter’s results. And with Apple, it’s the iPhone that drives the boat.
(Of course, investors expect the company’s growth to be driven by the iPhone AND the iPad. If the iPad is slowing down after less than two years, and just as competition starts to heat up, it could be a problem.)
Here’s a comparison of the growth of the iPad versus the iPhone and iPod.
Photo: Goldman Sachs
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