Can the iPad Pro become the savior for Apple's sinking tablet business?
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That's the question on Apple analysts' and investors' minds as the tech giant's larger, enterprise-oriented tablet hits the market.
And while I have my doubts about the iPad Pro for a few reasons, one well-known analyst reckons Apple's newest tablet form factor has everything required to revive Apple's iPad shipments and provide a pleasant boost to its bottom line in the year to come.
A much-needed boostIn a recent research note to investors, sell-side analyst Daniel Ives of FBR Capital Markets argued that the iPad Pro will drive Apple's tablet sales to 15% of its total sales in its recently begun FY 2016. Let's look at what that might mean in a more concrete sense.
Fiscal 2015 wasn't exactly kind to Apple's iPad business. Year over year, Apple's tablet revenue declined by 25%, and iPad unit shipments decreased by 19%. The fault isn't entirely the iPad's, though. Apple's decision to increase the screen size of the iPhone for the iPhone 6 and 6 Plus was probably one of the wisest financial decisions in the company's history. The move helped catalyze a historic financial windfall for Apple, but the new iPhone's larger screen also decreased the iPad's value proposition to some degree. Here's how this played out in financial terms.
Source: Apple investor relations.
But according to Ives, all that is about to change, thanks to the iPad Pro. Ives foresees iPad shipments rising to 15% of Apple's total revenue this year. Running the simple numbers, the average analyst estimate, which probably differs slightly from Ives', expects Apple to generate a mind-blowing $244.5 billion in sales this year, which implies the iPad should reach sales of around $36.6 billion in Apple's current fiscal year, a roughly 58% increase from last fiscal year. This looks great on paper. However, as we learned earlier with the iPad's iPhone 6-driven swoon, this move won't happen in isolation, either.
"If you don't cannibalize yourself, someone else will." Although the iPad Pro is likely to yield its fair share of organic growth, Apple investors should also expect it to cannibalize some sales from its Mac reporting segment. Those modeling Apple's potential financial performance at home should bake in some headwinds to the Mac business, which has enjoyed a renaissance of its own in recent years.
In terms of what the iPad Pro says about the broader tablet industry, it speaks to the growing effort among computer companies to create a single form factor that can work well in both a professional and personal setting. The problem is that most don't do that well yet. The popular reviews (Re/code, The Wall Street Journal, and Asymco, among others) seem to agree that the iPad Pro is a very good device, but not a great one. It's also interesting that Apple's largest tablet is now larger than its smallest laptop.
Eventually, we'll probably get something resembling Microsoft's Surface Book -- a tablet that attaches into a real keyboard. As of yet, laptops still generally trump tablets for productivity tasks, and tablets are slightly more convenient for less input-intensive activities such as reading and browsing the Web. With recent devices, Apple and other hardware companies appear to be getting quite close to finally cracking these results, which could have their own interesting effect on combined tablet and PC sales.
So while the iPad Pro will probably provide a lift to Apple's finances in the year ahead, it's also an important harbinger of where the industry wants, but is yet unable, to go.
The article Apple's iPad Pro: The Savior for Apple's Ailing Tablet Business? originally appeared on Fool.com.
Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Microsoft. 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.
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