MorningWord 11/27/15: Careful What You Wish For – $AAPL

by Dan November 27, 2015 9:52 am • Commentary

Black Friday is on like Donkey Kong.  I find the early reports of holiday selling season winners fascinating, the proclamations seem to come earlier and earlier each year, just as the Black Friday deals have (now seemingly permanent in retail).  Here are a couple early headlines from Target (TGT) on sales of Apple products, perennial winners, from Bloomberg:



This is obviously good news from a sentiment standpoint for AAPL as there have been growing worries that interest in the Watch has been waning since its launch in the Spring, and that the iPad’s growth had peaked quicker than any large product category for the company in the last 15 years.  Make no mistake, for Black Friday purposes, iPad deals were likely “door-busters”.

While the jury is still out on the company’s initial foray into wearables, there is little doubt that the company will eventually strike the proper balance for such devices in their ecosystem.

Tablets though are another story, at a very different arch in their evolution.  iPad sales peaked in units and sales a year ago, per


Looks a lot like the topping out of the iPod a couple years after the intro of the iPhone:


Put up or shut up for the iPad:  AAPL started selling their 12.9 inch iPad Pro a two weeks ago with the hope that the new product would resurrect growth in the category. While the company places the larger tablet in their “magical and revolutionary” realm of new products, some of the reviews have been tepid.  At the time of the launch, The Verge’s influential tech reviewer Walk Mossberg declared The iPad Pro can’t replace your laptop totally, even for a tablet lover. From Walt’s writings, we know that he loves his iPad Air for consuming content, his MacBook Air for creating content and an iPhone 6 as a mobile phone.  Aside from historically being very friendly in his reviews of AAPL’s products, I suspect long time reviewers like Mossberg are getting a bit tired with what appear to be incremental improvements on aging product lines.

In the quarter just reported, iPad sales were $4.2 billion, or about 8% of the total, but were down 20% year over year, and 6% sequentially.  AAPL has signed deals with Cisco and IBM to push the new larger more powerful iPads with keyboards and digital pencils into the workplace. This is AAPL’s plan for a return to growth in the segment?  Its not a horrible plan as most businesses likely use Windows based laptops, so AAPL would see little cannibalization if they can convert large corporations to scrap DELL/HPQ/Lenovo PCs in favor of iPad Pros, but I would not hold my breath.

And what’s this?? CEO Tim Cook has gone as far as to suggest that the iPad Pro could replace PCs.

On the consumer front I think the iPad Pro has the potential to be a big disappointment for AAPL, which has gone from having definitive uses for its smartphone, tablet and laptop offerings to the current period where they are starting to blend together.

In the fall of 2012 AAPL launched the iPad Mini at 7.9 inches, in addition to the existing 9.7 inch tablet. iPad’s now have price points between $300 and $1000 excluding accessories which for the iPad Pro can be up to $250.  AAPL has demonstrated that the iPad Pro can clearly replace the cost of a PC, but it will take take time to see if it can replicate its productivity.




And here are the price point and sizes for the MacBooks, which is much larger revenue contributor than iPad’s, ranging from $900 to $2000:



And then of course iPhone, ranging from 4 inches for the iPhone 5 at about $100 to the iPhone 6s/+ from from $549 to $949:



To be fair, I have a 13 inch Macbook Air, a 27 inch iMac, a 7.9 inch iPad Mini and a 4.7 inch iPhone 6s.  I could not live without my iPhone and iMac and Macbook Air.  The iPad is a device in my home that is purely a discretionary item. As some one who is deeply embedded in the AAPL ecosystem, it seems clear to me that the iPad as category in that ecosystem will soon look a lot like the iPod.  Maybe the company can pull a rabbit out of a hat with the iPad Pro in the enterprise, but I suspect it won’t.  As for consumers, the Macbook and Macbook Air are the gold standard of portable PCs, and I just cant understand why the company who has been gaining, and at the very least retaining market share with industry high margins would want to make the case for why a content consumption device with a couple clip-on accessories will replace such a near perfect product.  Here is the quarterly sales for Macs, lower left to upper right, not the case for iPad.


I guess my take-away is simple, why should Tim Cook make the case this soon into launch that the new iPad Pro could replace PCs anytime soon?  This is Steve Jobs sort of stuff, that frankly Cook is just not that well suited for. Be careful what you wish for.

The purpose of the post was not to crap on AAPL or its products, regular readers know I am a big fan (of the products and the company, not the hype around the stock), but merely to highlight the increasing overlap in size and price, which could be the thing that cannabalizes a product line, as opposed to a competitors offering or a new device.