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 The iPad, on the other hand, is upgraded in a manner similar to PCs, meaning it is only upgraded upon becoming outdated.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.
You are the one who lives in a delusional fog, VanDeKoik. . . I post factual data easily refuting your wishful hallucinations about OS X being a dying operating system and you respond with insults screaming that I am the "nut job" because I dare challenge your world view?
"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."
As I said, you never come across as sane. Comments such as this one is why.
VanDeKoik, you've managed to hit every single one of the symptoms of MAPS. Negative, check. Judgmental, check. Aggressive, check. False commentary, Check. Phobic reaction to projected Apple user Euphoria, Check. Simply amazing.
Swordmaker's and Kathy's proposed diagnosis for the new ICD-10 addenda:
90210 iOS Munchausen's Apple-Plexy Syndrome (MAPS), The overwhelming compulsion to post negative, judgmental, aggressive, and false commentary on any website thread related to Apple products wherever found, including phobic reaction to projected Apple user euphoria. First and subsequent encounters.
Oh? What do you use a word processor for that is missing in Pages? Please tell us. We use the Mac version in my office for everyday business purposes. . . and I have used the iPad version to write two novels with. So, tell me, Smedley, what do you find missing?
I know it doesn't have all of the bells and whistles that Microsoft Word has, but most people don't need them. What is Pages missing that you require? i
Best. Thread. Comment. Ever.
YES! :)
Let's see if this thread is unrelated. . . What is the title of this thread"
Why Microsoft's Surface Pro 3 Sales Soared as Apple's iPad Sales Plunged
Oh, no, VanDeKoik, that's not unrelated. . . it is a COMPARISON title. . . and it means it is going to discuss BOTH products. How about in the article itself? The lede paragraph is about Apple. . . and ELEVEN of the paragraphs are about Apple and only FIVE are about Microsoft's Surface Pro. The final paragraph segues to an entirely NEW APPLE product. . . This, my FRiend is an Apple article, not a Microsoft article.
Nor are we "pulling charts out of" of any rude bodily orifices to reassure ourselves of anything. We are putting YOU in your place with your false narratives and braggadocio claims of a failing company and other idiotic claims by hoisting your lies into the light of cold hard facts, easily found from authoritative sources when looked for—facts you've been told and shown MANY times before—which makes your repeated lies egregious and deliberate.
I must conclude from your repeated use of deliberately false data and extremely confrontational approach that your purpose is not discussion but to incite a prohibited flame war.
Apple just got lucky that its two major products came out post 2008 as the Federal Reserve started showering our economy with helicopter money.
What better bubble stock (APPL) to be emblematic of our bubble economy with its false prosperity via Federal Reserve flooding the US and the world with fake fiat dollars. This is the only way people can afford Apples overpriced inferior products. Only with this bubble can the snobs, gays, Educrats, pathetic fanbois, government employed drones, useless eaters and urbanites indulge their iPad, iFone fantasies.
Tim Cook should be making a yearly pilgrimage to DC to kiss the ring of the Federal Reserves chairman. The only innovation and real world benefits-improvements since the 2008 deflationary collapse come from our fracking revolution. From our domestic energy sector. Not from stupid Apple commodity products as in..... Numerous manufacturers make similar products that are just as good and better than Apples.
Better enjoy your warm and fuzzies while you can because the next severe downturn will see the Chinese Lenovo buying (hostile take over) Apple to fight the final battle with Samsung.
Apple iPhone release date June 29, 2007
Again, distortions. The money the government pumped into the economy has stayed pretty much on Wall Street. Show us how it has reached Main Street. . .
DOH! How is CRApple Main Street?
“Now you know what sane people hear when you Apple loons get wound up.”
Those threatened by Apple’s offerings for whatever reason are the ones who get “wound up”.
By all means, carry on. It’s amusing. :-)
Dude, the only people that blew a gasket on this story are Swordnutter and his merry posse of cultboys.
They saw someone say something about a non-Apple product in compassion to the iPad, that was not derisive and condescending, and they had to launch into their usual circus act of proving how terrible a thing that was by yanking out sales stats and circle patting themselves on the back for their love of the stuff they fork their money to Apple, I assume, make themselves feel special.
The only thing “amusing” is how you people are so off into that fairy land that you seriously do not know how utterly bizarre you come across.
The question is why do Apple users have such a visceral reaction to the idea that people use other platforms and have the nerve to not feel inferior like they love to tell themselves that we must be feeling? Why are you so threatened?
Seems to me you are both two peas in the same pod... One pro-Apple, the other pro-Microsoft.
You are both equally silly.
It’s just two technology companies. It’s not like the GOPe selling out to Obama or the country circling around the toilet bowl politically and culturally. Get a grip, FGS!
The least expensive, lowest powered Surface 3 I can find (new) is $799.
There is a sub $500 Yoga 2, but it runs a Pentium 2.166 Processor...bwahahahaha! One with an i3 processor is about $600. It has a stellar 1366 x 768 display.
What it all really boils down to is what do you want to do with it. If you are looking for a laptop replacement, a Surface is a better choice for content creation than an iPad. I tell customers who are considering a tablet to write down everything they expect to do with it and what they currently do with their laptop.
Funny thing is, for many people, all they do is content consumption. They surf the web, read email, download music, manage their finances, and organize and sometimes edit photos. The rare occasion they use a word processor or spreadsheet they are at work, using a desktop computer. They should have a tablet.
For me, my laptop is used for editing my web site and higher end photo and graphics creation and editing. My iPad does everything else. I take it everywhere. It is my still camera, my video camera, my library, my reference tool, my communications center, my news source and my anti-boredom device. In a pinch I can use it to edit documents and spreadsheets.
All three form factors - desktops, laptops and tablets - have their place. I don’t think that making devices that blur the lines between any two is particularly wise or effective. Desktop replacement laptops are generally underpowered for a desktop and too big to be conveniently carried. Laptops that act like tablets are generally too large to be as portable as regular tablets. Too many compromises when you do that.
No. 1 problem with Pages is that it will remove half the formatting and embedded codes of a Word document.
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