Posted on 12/11/2014 9:23:14 AM PST by SeekAndFind
Apple (NASDAQ: AAPL ) reported its fourth-quarter earnings on Oct. 20, impressing investors in all areas except for iPad sales. iPad shipments fell year over year for the third consecutive quarter, dropping 13% to 12.3 million units. iPad revenue ($5.3 billion) also came in lower than Mac revenue ($6.6 billion) for the first time in years.
Three days later, Microsoft (NASDAQ: MSFT ) posted its first-quarter earnings, revealing that sales of its Surface tablets had more than doubled both year over year and sequentially, to $908 million. Microsoft attributed that surge in demand to "strong interest from students, professionals, and increasingly enterprises for Surface Pro 3."
Apple's iPad Air 2 (L) and Microsoft's Surface Pro 3 (R). Source: Company websites.
The decline of the iPad and the sudden rise of the Surface highlights an interesting divergence between the tablets and "laplets" markets. Let's look at what this market shift could mean for both companies in the long run.
Why the iPad is falling
Demand for the iPad is waning for three main reasons: a longer upgrade cycle, a lack of compelling new features, and its premium price tag.
iPhone sales are fairly predictable, thanks to two-year carrier contracts that end with an inevitable upgrade. The iPad, on the other hand, is upgraded in a manner similar to PCs, meaning it is only upgraded upon becoming outdated. Moreover, many customers are handing down their old iPads to family and friends before upgrading, which throttles sales of iPads to new customers.
On Oct. 16, Apple unveiled the new iPad Air 2 and iPad mini 3. While the iPad Air 2 was slimmer, lighter, and had better specs than its predecessor, the mini 3 has the same specs as its predecessor, with bigger storage options (up to 128GB) and a Touch ID sensor. This refresh, while expected, simply won't convince customers to ditch their old iPads. Moreover, the iPhone 6 Plus will probably cannibalize sales of the iPad mini 3.
That brings us to the third issue: the iPad's questionable ability to maintain its pricing power. Lenovo (NASDAQOTH: LNVGY ) , for example, recently unveiled the Yoga Tablet 2 Pro, an impressive 13.3-inch Android tablet with a built-in Pico projector, a subwoofer, and a 32GB hard drive, starting at $500. That's the same price as an entry-level iPad Air 2, which has a 9.7-inch screen and 16GB of storage. Granted, these two devices appeal to different types of customers, but it's not hard to see how the owner of an older iPad could be tempted by the Yoga Tablet 2 Pro. Meanwhile, low-end Android tablets are now so cheap that it's possible to buy two or three for the price of one new iPad.
Lenovo's . Source: Lenovo.
These three problems have caused the iPad's global market share to fall from 60% in the second quarter of 2012 to 27% in the second quarter of 2014, according to IDC.
Why the Surface is rising
Microsoft's Surface had a rough start when it hit the market in October 2012, but customers eventually realized the device was more of an ultrabook than a tablet. Microsoft also heavily marketed the Surface as a productivity device for students and professionals, rather than going head-to-head against the iPad as a consumer tablet.
Microsoft leveraged Windows' dominant market share of PCs to give businesses a smoother way to upgrade their older computers without abandoning legacy software or older network setups. With the docking station ($200), the Surface can be converted to a full desktop with a wired ethernet connection -- which can't be accomplished by first-party means on an iPad.
In September 2013, Delta Air Lines (NYSE: DAL ) announced that it would equip 11,000 pilots with Surface tablets installed with paperless "electronic flight bags" with key charts, reference documents, and checklists. Hospitals, including Seattle Children's Hospital and the University of Pittsburgh Medical Center, have also deployed the Surface Pro 3 to help doctors seamlessly access electronic health records from the patient's bedside and their desks. Some retail stores have even installed the Surface in customer-facing kiosks that link to their sales database.
More importantly, the arrival of the Surface has convinced Microsoft's hardware allies (and competitors) to develop similar convertible devices targeting both regular and enterprise consumers. This helps Microsoft generate more revenue from industrywide Windows OEM licenses, which are far more important to its top line than Surface sales.
The tortoise and the hare
While many consumers like to compare the iPad and the Surface, investors should remember that the two devices are designed with two very different strategies in mind.
The iPad is focused on leapfrogging over legacy PCs and into the future. That's why it eschews the microSD card readers and USB ports that can be found on the Surface. The Surface is developed as a more practical transition between PCs and tablets, since it can fully replace traditional desktops and laptops without forcing businesses to sacrifice legacy software and hardware.
Therefore, Apple might have jumped too far ahead when it launched the iPad four years ago, which has now caused it to burn out and lose momentum. Meanwhile, Microsoft built the Surface with enterprise needs in mind, which is now helping it slowly, but steadily, gain market share.
Forget the iPad, next hit Apple product revealed
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors.
They won’t make it.
My main go-to machines are the desktops - nothing beats their horsepower for producing imaging, audio and video content.
As a means of freeing myself from being tied to the desktop I also have a laptop, a Winbook now running Puppy Linux. I use it primarily for talks along with my data projector.
The Android tablet (Asus TF-101), while not being the latest and greatest is adequate for surfing the web and reading e-books as well as games and it has replaced the laptop for most presentations I give. The sd card and USB port as well as the design of the OS make it easy to set up directories and move media in and out of the tablet.
I use my iPad everyday (New iPad with retina display) and consider it worth every penny I paid for it. iOS particularly shines when it comes to music, some of the apps can be a little pricey compared to other tablet apps (10 to 20 dollars each in some cases) but are a small fraction of the same software as desktop apps.
Animoog, Arturia iSEM, iMini, iVCS3, Thor Alchemy, Geosynth and Alchemy together might have cost me a hundred bucks or so while the same software for Windows might typically run one to two hundred dollars each, while, if recreated in hardware, each of these synths would be selling for two or three thousand dollars EACH!
A niche market, to be sure, but I for one am overjoyed that it exists.
Well, let's see, VanDeKoik. Do you know anything about the theory of large numbers and statistics? When your sales numbers are very low, it is very easy to double sales. . . when they are very large it is very hard to make changes in statistic metrics. My point was to point out to you that your crowing is miss applied. The 1.7% market blip of the Microsoft Surface Pro Sales against the iPad behemoth is like the Mouse and the Elephant scare story. . . the elephant really doesn't notice the mouse.
I know you guys love to live through them like you actually made the money yourselves, but seriously learn to follow a conversation before you break out the ledgers.
VanDeKoik, the ledgers were broken out in the article and were being used to distort reality. I set the record straight using facts. . . as I usually do. I know you don't like facts getting in the way of a good rant, but that's what facts do. Too bad.
Here's another. Microsoft's Surface Pro 3 is only 0.26% of the overall marketshare of tablet sales. WOW! That's a real surge for you to crow about!
Now, every product has to start somewhere and grow. . . and so did the iPad. But, Van, this is going on THREE YEARS for the Surface. It's no ingénue.
Oh, WOW. . . nice tantrum.
It's funny how how all these non-Apple companies are missing the point of what Apple is doing. Apple is making products that work well with each other, to provide a seamless experience accessing your data no matter what you're using. A hybrid product misses the boat. The iPad is different than a laptop computer, and that is different than a desktop tower. Microsoft trying to push a hybrid Windows Surface tablet/laptop is like Detroit pushing the Simpsons Car - does any one thing poorly while trying to provide multiple options.
Look at the automobile industry for a comparison. The most popular sports cars are limited in those features offered in SUVs, and vice versa. You combine them and you get a lemon. I own a truck, sports car and a sedan, and enjoy each for what it does and does well. Surface will go the way of the Zune - used by declining numbers of MS fans.
Now you know what sane people hear when you Apple loons get wound up.
“Here’s another. Microsoft’s Surface Pro 3 is only 0.26% of the overall marketshare of tablet sales. WOW! That’s a real surge for you to crow about!”
It’s almost like when OSX goes from 5 percent to 6, and you guys throw a celebration. I’m glad you will now advocate for the removal of Apple’s failed OS because it isn’t outselling Windows. Because sales statistics are all that matters to iFanatics.
“...Apple’s fans ran around for months mocking the Surface for every reason under the sun.
But in the usual fashion, Apple will now rush the same thing to the market, and all of their fans will say that Apple waited so that it can be “done right”.”
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Like moths mindlessly and irresistibly drawn to the light, Apple haters feel compelled to flock to treads related to Apple products and post comments belittling Apple users and Apple products.
Scanning through this thread, I find the numbers laid out in post 42 to be particularly enlightening. It’s clear that consumers are voting for what they have determined is the best product with their hard-earned dollars. And the vote is a HUGE landslide; it’s not even close.
So I encourage readers to GO TO POST 42 to do a quick look-see; the sales numbers there comparing iPad sales and Surface pro sales are the reality.
“Why Microsoft’s Surface Pro 3 Sales Soared [to $908 million] as Apple’s iPad Sales Plunged [to $5,300 million]”
Apple won’t be around in five years or will be a fully owned subsidiary of Lenovo or Samsung
Why do you hatey hate hate the Apple haters? Just let them be.
lol lol
You've never come across as sane in an Apple thread. . .
Would love one! A friend had one and it was incredible.
Meanwhile, Windows computers are losing market share and Mac OS X is gaining market share driven by an 18% YOY growth the previous quarter and 13% this last quarter, while Windows lost 22.6%). . . and in the far more important metric of profit share, Apple is taking home 53% of the entire PC industry's profits.
"Apple’s Mac marketshare hit record highs during the third calendar quarter of 2014, according to research firm IDC. Official numbers from the firm’s quarterly PC tracker show that Apple’s Q3 shipments topped 2.34 million Macs moved during the quarter in the U.S., giving it 13.4 percent market share and putting it in third place behind HP and Dell. That’s the best market share Apple has every achieved in the PC market, which for IDC’s purposes, doesn’t even include tablets like the iPad.Mac market share rose from 12.9 percent in Q3 2013 to, with sales up from 2.07 million units during the year ago quarter. Growth among the top five vendors in the U.S. was up in general, without Acer and Dell both posting higher increases in terms of percentage, but across the rest of the field, sales were generally down – 22.6 percent in fact. The overall market in the U.S. rose 4.5 percent, with the gains from the leaders outweighing other losses.
Apple’s share grew 20.5 percent between Q3 2013 and Q3 2014 on the global stage, with 5.51 million units shipped in the most recent quarter, making up 69 percent of all sales and putting it at number 5 overall among the top PC makers. That share is up from 5.7 percent during the same period last year.". — "Mac Achieves Highest U.S. PC Market Share Ever In Q3 2014 According To IDC"— November 7, 2014 TechCrunch.
Again, you are hoist on the petard of hard data. Facts, VanDeKoik, that you so detest. So tell us again, exactly how can it be a "failed OS?"
We are still waiting for your LAST prediction where Apple was supposed to crash to an unspilt $100 a share. . . It is now at an an unspilt $781.64. When is it going to crash, DennisW? You claimed you shorted AAPL. . . how much did you lose on those shorts?
Also those non-existent Apple bonds? What about them? Apple now does have some. . . did you buy any?
In fact, CityBank just raised its target value for AAPL by 20% and TheStreet analysts claim that at its current valuation, AAPL is, wait for it, UNDERVALUED. They expect Apple to hit a 30% increase in profits in the next year factoring the opening iPad and iPhone 6 and 6plus sales in China and India, the addition of Apple Pay which is growing by leaps and bounds in the retail markets, and the coming introduction of the Apple Watch.
“Meanwhile, Windows computers are losing market share and Mac OS X is gaining market share driven by an 18% YOY growth the previous quarter and 13% this last quarter, while Windows lost 22.6%). . . and in the far more important metric of profit share, Apple is taking home 53% of the entire PC industry’s profits. “
LOL! Completely like I predicted.
Only a nut job actually has their head this far up some company’s ass that THIS is what your sad life consists of.
Rambling about “profit share” and YOY growth of an OS of a company you dont even work for!
“You’ve never come across as sane in an Apple thread. . “
Dude, seek help. One day when that company starts to fade away, we are going to find you on a bridge, hugging a picture of Steve Jobs, whispering for him to catch you in his loving arms as you push off.
Pages is a weak and crippled piece of software that I have found to be useless for many reasons
Like flys mindlessly and irresistibly drawn to a pile of $hit, Apple loons feel compelled to swarm to treads related to non-Apple products and post comments belittling those products and pulling charts out of their ass to reassure them that no one could possible dare choose something that isn’t made by their illustrious LGBT CEO, and to belittle any idea that someone may actually like using something that isn’t made by Apple.
Hell they even have a ping list to summon the cult to action the moment the RDF is disturbed.
“Like flys mindlessly and irresistibly drawn to a pile of $hit, Apple loons feel compelled to swarm to treads related to non-Apple products...”
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Jeez, I wouldn’t go so far as to analogize “a pile of $hit” to “non-Apple products” as you have done. I guess that ADS (Apple Derangement Syndrome) can drive some folks to a weird place to say weird things.
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