Is the iPad Dead?

By Adam Levine-Weinberg Markets Fool.com

Less than four years ago, it seemed plausible that Apple's (NASDAQ: AAPL) iPad product line was on track to dominate the tablet market and upend the global PC market.

Continue Reading Below

Today, that idea looks laughable. iPad sales have been in free fall for years. Potential catalysts like the launch of the business-friendly iPad Pro lineup, the availability of cheaper iPads, and the aging of the iPad installed base have all failed to reinvigorate sales.

With this backdrop, it's reasonable to wonder if the iPad's immense popularity was just a fad. There's still a chance for the iPad to make a modest comeback, though -- and if that's going to happen, it will almost certainly begin within the next year.

The launch of the iPad Pro hasn't boosted iPad sales. Image source: Apple.

iPad sales continue to decline

Apple posted its first full-year iPad sales dip in fiscal 2014. Unit sales slipped 4% that year, while revenue fell 5%.

Continue Reading Below

The sales declines accelerated thereafter. In fiscal 2015, unit sales plunged 19% and revenue dropped by 23%. In fiscal 2016, unit sales fell another 17%, while revenue tumbled 11%. Double-digit declines along both metrics continued in the first quarter of fiscal 2017.

The net result is that Apple shipped just 42.6 million iPads during the 2016 calendar year, down about 40% from the peak a few years ago. In its most recent annual report, it blamed the decline in iPad sales on cannibalization by other products (most notably phablets like the iPhone 6 Plus and its successors) and a long replacement cycle for iPads. The strong dollar may have also hurt sales outside the U.S.

Does the iPad have a future?

Despite the weak sales trend, CEO Tim Cook reiterated on the company's recent earnings call that he is bullish about the iPad's long-term trajectory. Sales grew at a double-digit rate in India and Mainland China last quarter. The iPad continues to gain traction in the corporate sector. Moreover, customer satisfaction remains extremely high.

Thus, the big problem is that people who bought iPads several years ago don't seem to be replacing their devices. The first four full-size iPad generations and the original iPad Mini -- all of which debuted between 2010 and 2012 -- still account for more than 45% of iPad usage, according to Fiksu.

It's becoming less and less plausible that a big iPad replacement cycle is right around the corner. The iPad's heyday was from fiscal 2012 to fiscal 2014. During that period, Apple sold an average of 65.8 million iPads per year, bringing in over $30 billion of revenue annually. Those devices are now three to five years old. Even if iPads are destined to have a PC-like upgrade cycle of four or five years, Apple should already be benefiting from a wave of upgrades.

Still, the high price tag of the iPad Pro and the lack of updates to cheaper iPads (the iPad Air 2 was launched in 2014 and the iPad Mini 4 debuted in 2015) haven't helped. It's possible that an upgrade of the full iPad product lineup could get sales growing again.

Old iPad models have proven to be good enough for most consumers. Image source: Apple.

New iPads on the way

If that's the case, then help may be on the way. Many Apple watchers expect the company to roll out an updated iPad lineup this spring, perhaps as soon as next month.

There isn't a consensus as to how many new iPads will be unveiled or what sizes they will be. Highly followed analyst Ming-Chi Kuo has predicted thatthree new iPads -- successors to both versions of the iPad Pro as well as a cheaper 9.7" replacement for the iPad Air 2 -- will be released. Other pundits expect Apple to release a new iPad Mini (either called the iPad Mini 5 or the iPad Pro Mini).

Given how easy the year-over-year comparisons are these days, the simultaneous release of three or more new models ought to get iPad sales growing again. Still, investors need to curb their enthusiasm. The current versions of the iPad Pro haven't sold all that well. The older iPad Air 2 and the iPad mini lineup have been far more popular over the past year, indicating that most consumers aren't willing to pay $600 or more for an iPad anymore.

Of course, the most ardent iPad fans will still shell out big bucks for the latest and greatest models. Apple may also drop the prices of the first-generation iPad Pro and the iPad Mini 4. That could lure more price-sensitive customers to upgrade their aging iPads. But the iPad product line may never return to its previous peak in terms of sales and profitability.

10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Adam Levine-Weinberg owns shares of Apple and is long January 2018 $90 calls on Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool is long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.