Apple Inc.'s iPad Business Finally Gets a Boost

By Markets Fool.com

Image source: Apple.

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After being heralded as the "next big thing," Apple's (NASDAQ: AAPL) iPad has been in a multi-quarter slump, with revenues continuing to plunge despite the iDevice maker's best efforts. Last quarter, Apple finally reported a return to growth in iPad revenue, as expected.

iPad sales rose to $4.876 billion, up from the $4.538 billion a year ago. Units were actually down once again, plunging from 10.931 million to just 9.95 million. The revenue increase implies an increase in iPad average selling prices, which CEO Tim Cook attributed to the release of the (relatively pricey) 9.7-inch iPad Pro during the quarter.

Is Apple's iPad business out of the woods? Or is this just a short-term uptick in an otherwise long-term decline?

Near-term stabilization

The return to modest growth in the quarter was hardly impressive. Even with the ramp of a new product -- the 9.7-inch iPad Pro -- the companystillcouldn't deliver on a year-over-year unit increase. The company relied on the introduction of the newer 9.7-inch iPad Pro -- a product more expensive than its immediate predecessor -- to drive that growth.

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There's nothing wrong with Apple driving revenue growth through average selling price increases; increases in average selling prices are often good as they show that customers find increased value in the company's product offerings.

The ramp of the new 9.7-inch iPad Pro clearly provided some stabilization last quarter. It's not clear when Apple will refresh the rest of its iPad lineup, but I wouldn't be surprised to see such refreshes fairly soon in order to keep iPad revenue/units in reasonable shape over the next couple of quarters.

Looking out longer term

Over the longer term, the future for iPad looks cloudy. With long upgrade cycles and continued competition for share of wallet against the company's own MacBook and iPhone lineups, it's difficult to see iPad becoming a business segment that can grow consistently year-in and year-out.

Upgrade cycles are seemingly long in the tablet market and it would seem that bringing out new and interesting products year-in and year-out hasn't helped to offset this fundamental market dynamic.

In my view, Apple should continue on trying to develop compelling products for this segment as it still represents a large, if perhaps potentially stagnant, revenue opportunity. This way, Apple can still rake in steady cash flow from iPad sales and if market dynamics change for the better, the iDevice maker will be well positioned to capitalize on such an opportunity.

From an investment perspective, it's probably best to not count on much in the way of good news for iPad for the foreseeable future. iPad is a relatively small part of the company's overall revenue profile and that's not likely to change. Instead, it should be monitored as just one part of a much larger, iPhone-dominated, business.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on 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.