Why Apple Is Getting More Serious About The iPad

The last three years have been difficult for Apple‘s (NASDAQ:AAPL) iPad franchise, on account of a shrinking tablet market and cannibalization from larger screen iPhones. However, Apple has taken multiple steps to shore up its tablet business this year. For instance, it introduced its lowest priced iPad with a 9.7-inch display earlier this year, while refreshing its flagship iPad Pro models during the WWDC developer event conducted last week. The company also introduced compelling software enhancements for the iPad with its latest iOS 11 software. Below we take a look at why Apple could be getting more interested in the product line, despite its underwhelming performance over the last few years.

We have a $154 price estimate for Apple, which is roughly in line with the current market price.

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The State Of The Tablet Market

The tablet market has declined for the last 10 consecutive quarters. During Q1 2017, total tablet shipments stood at 36.2 million per IDC, marking a year-over-year decline of 8.5%. However, there are two areas of the market which are faring better. For one, detachable devices which offer a first-party keyboard (such as the iPad Pro) have continued to witness growth as customers look for greater productivity from their tablets. Secondly, budget devices also appear to be more immune to the broader slowdown. For instance, both Amazon and Huawei, which tend to focus on lower-priced devices, have seen their market share expand in recent quarters. Apple’s recent moves appear to capitalize on these two key trends.

New iPad Pros And iOS 11 Bolster Apple’s Presence In The Detachable Space

Apple’s iPad Pro lineup, which is targeted at the detachable tablet market, could help the company improve iPad ASPs and margins given their premium price points – $650 for the newly launched 10.5 inch version to over $1,200 for a fully-equipped 12.9 inch version. Premium accessories such as the Apple Pencil and Keyboard (priced at $100+) could also drive margins. Apple has also unveiled significant iPad-focused productivity improvements such as enhanced multitasking, file management, drag and drop as well as a dock (similar to Mac) in its latest version of iOS.

Apple appears to be targeting the new iPads at potential customers of lower-end Windows laptops and convertible PCs. This could make sense, as the company’s Mac lineup has generally been getting more expensive, with the latest models priced at upwards of $1,300, with the aging MacBook Air remaining the company’s only sub-$1,000 notebook. While Apple does not break down product-wise margins, it’s possible that margins for the iPad could be similar to the Mac, as the iPad uses Apple’s proprietary silicon, unlike the Mac, which uses Intel processors and graphics chips from the likes of AMD.

5th Gen iPad Caters To The Lower End of The Market

Apple is also getting more serious about the low end of the tablet market. In March, the company launched a new 9.7 inch iPad (5th generation) targeted squarely at casual users. With the new iPad, Apple might be better equipped to cater to lower-end customers and first-time tablet buyers, with the product serving as a steppingstone of sorts into the larger Apple ecosystem. Tablets have longer upgrade cycles compared to smartphones, and iPads which were launched in 2012 or earlier account for roughly 30% of the tablet’s installed base.There is a possibility that the budget iPad could help Apple stimulate an upgrade cycle of sorts for these users, bringing them up to date with Apple’s latest hardware and software features.

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