Longtime followers of Apple have likely heard of Ming-Chi Kuo, a well-respected KGI Securities analyst who covers the company. Though not perfect, Kuo is widely regarded as one of the most accurate analysts out there, in identifying both the attributes and launch timing of future Apple products as well as unit sales. For example, Apple Insider reports that Kuo forcasted the sale of 73 million iPhones last quarter, which was off just slightly from the actual shipment number of 74.5 million.
Continue Reading Below
At any rate, Kuo is out with a report on iPad shipment forecasts for 2015, and the numbers are ugly. According to 9to5Mac, which received a copy of the report, Kuo expects iPad shipments to drop 30% year-over-year in 2015 to about 45 million units.
What kind of trouble does this spell for the company?
The large iPad is not going to do much
To make matters worse, while many bulls have been banking on the rumored 12.9-inch iPad to help turn things around, Kuo is not terribly optimistic about prospects for that device.
"While we are confident a new 12.9-inch iPad model can create improved user experience in the long term, we don't anticipate it will contribute meaningfully to shipments anytime soon," writes Kuo in the research report, according to 9to5Mac.
Further, even if the 12.9-inch iPad does eventually become the success that some expect it to be, the device might just end up cannibalizing MacBook Air sales. Apple, of course, is not afraid of cannibalization, but for those trying to construct financial models, it might not be correct to view the larger iPad as purely incremental to total revenue/profit base for the company
Continue Reading Below
What can Apple do?
At this point, Apple needs to find a way to rejuvenate iPad sales. While I do not believe in silver bullets, I do believe Apple is doing a solid job managing its iPad business, but there are definitely product-level improvements that could help boost sales.
First, Apple has seemed to completely neglect the iPad mini lineup. The iPad mini 3 was essentially the same exact tablet as the iPad mini 2, except with Touch ID included. Apple did not even bother to include a faster, more capable processor, nor did it improve the display (which DisplayMate's Dr. Raymond Soneira panned).
In other words, I know this sounds completely obvious, but Apple might see better iPad sales if it made its flagship iPad mini model more compelling.
Moreover, it is hard to forget The Wall Street Journal's Joanna Stern and hercriticism of the iPad Air 2 for its lack of more robust multitasking/multi-window capabilities. Indeed, if Apple wants to convince users of older iPad models to shell out significant cash to upgrade, a good way to do it would be to bring fundamentally improved functionality to the table.
What does this mean for investors?
Despite the trouble Apple is having with its iPad business, the company is raking in record overall revenue and profit thanks to its booming iPhone business, which made up 68.6% of revenue last quarter. As long as the iPhone gravy train continues, I do not think investors should worry too much about the iPad. Now, if the iPhone business starts to go south, then Apple financials will depend more heavily on other products in the lineup.
That being said, if the iPhone business were to suffer, then even a booming iPad business would not be enough to save the company and its stock price.
The article The Apple Inc. iPad Is Doomed -- Does It Matter? originally appeared on Fool.com.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.