Will an iPad Air 3 Help Apple, Inc.'s Tablet Sales Rebound?

By Markets Fool.com

Next month, Apple is expected to launch a new iPad. The rumored tablet will be an iPad Air 3, according to 9to5Mac's reliable Mark Gurman. If Gurman is right, the iPad could include significant changes, taking some cues from the company's recently launched iPad Pro. But will significant changes be enough to save the company's declining iPad segment?

Continue Reading Below

iPad Air 2. Image source: Apple.

Declining iPad sales
Apple's iPad unit sales first started declining in the company's second fiscal quarter of 2014 -- or about two years ago. And the decline to follow has been sharp. For context, consider the 38% decline in iPad unit shipments between Apple's most recent quarter and same quarter two years ago. And iPad unit sales in the company's most recent quarter are down 25% from the year-ago quarter.

Investors are wondering whether this trend is temporary or representative of a long-term secular contraction in tablet sales. After all, the growing popularity of smartphones with larger displays -- phablets in particular -- is snapping up share from tablets. Then, of course, there's the fact that the upgrade cycle for tablets appears to be much longer than it is for smartphones.

A potential rebound?
Apple CEO Tim Cook has been optimistic about iPads even amid a decline in sales.

"We're very bullish about the future of the tablet market," Cook said in the second half of 2014 during an earnings call.

Continue Reading Below

Cook has continually cited the iPad's superior usage statistics compared to usage data for other tablets, the device's popularity for commercial applications, and Apple's pipeline innovation in the category, as catalysts for further growth.

Even during an Apple earnings call this summer (via a Reuters transcript) the CEO remained optimistic that the company can count on a meaningful upgrade cycle in the future.

I believe that the iPad consumer upgrade cycle will eventually occur because as we look at the usage statistics on iPad, it remains unbelievably great. The next closest usage of the next competitor, we are six times greater. And so, these are extraordinary numbers. It's not like people have forgotten iPad or anything. It's a fantastic product.

During Apple's most recent earnings call Cook cited data from NPD that pegged iPad's U.S. market share for tablets priced above $200 at an impressive 85%. Cook also noted an IDC study asserting iPads account for 67% of the U.S. commercial tablet market.

iPad Pro. Image source: Apple.

While it's not clear yet whether Cook's optimism for the company's iPad segment is realistic, investors shouldn't expect to see a rebound in the current quarter. With Apple's iPad Air 3 speculated to go on sale during the second half of March, the new product will only impact about two weeks of the quarter.

The true test to see whether there's hope for iPad sales to begin moving upward again will be the company's third fiscal quarter of 2016, which begins in April.

Apple's iPad segment is still the company's second-largest measured by revenue, highlighting the importance of tablet sales to the company. Notably, however, Apple's Mac and services segments are close behind. iPad revenue during Q1 was $7.1 billion while Mac and services revenue were $6.7 billion and $6.1 billion, respectively.

The article Will an iPad Air 3 Help Apple, Inc.'s Tablet Sales Rebound? originally appeared on Fool.com.

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends 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.