What Is Wrong With Apple's IPad Business?

Phil schiller introduces apple ipad airAPApple marketing VP Phil Schiller.

While most people like to focus on the iPhone when it comes to Apple, it’s the iPad that’s perhaps the the more intriguing story.

Philip Elmer DeWitt has gathered analyst predictions for the iPad for the March quarter, and the consensus sees Apple selling 19.33 million iPads. If accurate, that’s a 0.7% drop on a year-over-year basis.

The iPad was supposed to be the second strong leg of Apple’s business. It’s definitely a solid business that nearly any company would want, but it’s seen a startling decline in its growth rate at an earlier than expected stage in its life cycle.

Why has the iPad hit a wall? We’re not sure. Hopefully, an analyst asks Tim Cook about it on the earnings call, and he gives a good, insightful answer. Last quarter he was asked about it, but brushed off the question.

If we had to guess, we’d say it’s a mix of factors:

Pricing: When the iPad was first released, it cost $US500, and Apple’s rivals couldn’t compete with that number. Then, very quickly, they figured out how to lower their prices. Amazon was the first to really get aggressive on price. It sold a 7-inch Kindle Fire for $US199 in 2011. That Fire is now $US119. It also offers an 8.9-inch Kindle Fire for $US339.

Usage: The iPad is best tablet for surfing the Web, using apps, and getting stuff done. But, the other, cheaper tablets are good enough for all of that stuff. For what a tablet does, the low-cost tablets are fine.

Life-cycle: Unlike the iPhone, the iPad doesn’t seem to be upgraded every two years. As a result, sales growth is going to be weaker.

Too-much, too-soon: The iPad sold in giant volumes early in its life. That’s created tough sales comparisons, and too-much hype for the future of the product.

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