Apple Is About to Give the Competition Another Drubbing
Apple shares continue to soar, and enthusiasm over the iPad remains untempered, despite reports of units languishing on store shelves following what was expected to be a sellout first weekend. Tablet PCs in general are expected to do well this year, at the expense of netbooks and e-book readers. One question is whether the iPad is just for Apple fans or is likely to bring more customers into the company's fold.
04/07/10 5:00 AM PT
Going up against Apple must be akin to facing heavyweight champion Joe Lewis in the ring -- you get hit with so many blows so fast that your best option is to lie down.
Perhaps that's what Apple's competitors feel like this week. While they're still reeling from last Saturday's iPad's launch, Cupertino has announced plans to offer select guests a sneak peek at the next generation of the iPhone operating system this Thursday.
Sales of the iPad had analysts rushing to revise their estimates for Apple upwards; Thursday's show-and-tell might spark yet another round of optimism.
Joy to the iPad World
Analysts were burbling happily over their calculations when Apple began selling the iPad Saturday. About 300,000 iPads were sold on the first day by Apple's count -- far fewer than expected -- but analysts remained unshaken in their faith.
Pointing out that the sales figures were for Saturday only and that many Apple and Best Buy stores were closed on Easter Sunday, Brian Marshall, an analyst at Broadpoint AmTech, told MacNewsWorld that people likely would have snapped up another 200,000 or so iPads if sales had continued at a normal pace through the weekend.
"I still think my estimate that four million iPads sold in calendar year 2010 is conservative," Marshall said.
The attractiveness of the iPad lies in its media and content capabilities, he told investors.
Content available for the iPad includes e-books, magazines and newspapers from most major publishers; text books; apps and games; more than 8,500 movies and more than 55,000 TV episodes; more than 12 million songs and upwards of 10,000 music videos.
Wall Street raised price targets for Apple shares on Monday based on high hopes for iPad sales. Mark Moskowitz of J.P. Morgan raised his estimate from US$240 to $305, while Shaw Wu of Kaufman Bros. pumped his up from $253 to $295. Gene Munster of Piper Jaffray was more cautious, increasing his estimate marginally from $284 to $289.
Broadpoint Amtech's Marshall, Needham's Charlie Wolf, and Thomas Weisel partners' Doug Reid all pegged Apple's share price at $280.
A Cautionary Note
Which of these price points should investors trust? Hard to tell -- but it's wise not to get carried away.
Some analysts did get caught up in the iPad frenzy, notably Piper Jaffray's Munster, who predicted on Saturday that iPad sales would hit the 700,000 mark. Others pegged their target at between 500,000 and 600,000 units.
After Apple released its figures, Munster explained that he'd overestimated the online pre-orders, and cut his 2010 iPad sales estimate from 5.6 million to 4.3 million.
One reason early estimates may have been off is that Apple initially did not require customers to provide credit card numbers when pre-ordering an iPad online and only began asking for them as the delivery date loomed.
That could have been a slip, which would be a first for a company that's so attentive to detail as Apple is.
Alternatively, it might have been a great marketing ploy. People would feel free not to follow through on pre-orders if they didn't have to provide their credit card numbers up front, and there would be no way to gauge the number who would fail to follow through with their pre-orders, so Apple's figures quite possibly looked better than they would have if the company had insisted that people seal their deals with credit card numbers.
Of course, Apple's pre-ordering methods were no secret, so analysts should have taken abandoned pre-orders into account.
Tales From the iPad Dark Side
More facts that could be troubling to investors are emerging.
For one thing, it's not clear how many of the 300,000 iPads Apple claims to have sold on Saturday actually went to buyers.
Some of them went to channels, and Best Buy stores still appear to have quite a bit of inventory that likely contributed to that 300,000 figure.
Another possible problem is that many of those who bought the iPad on Saturday already own other Mac devices like MacBooks and iPhones. In other words, they were hard-core Apple fans.
What investors want to look for is the number of iPad buyers who didn't already own other Apple devices. If the iPad draws a significant number of new customers to Apple, then we'll have a better indication that it will really be a hit.
A separate but related issue is that of competition: HP is flaunting its upcoming Slate, and a slew of other tablets will hit the market soon.
Here's another caveat: The design of the iPad might cost it sales. Apple has engineered it to sit perfectly between the iPhone and the MacBook, Chris Hazelton, a research director at the 451 Group, pointed out.
"That will make it very hard for people to buy an iPad in place of either Apple product," he told MacNewsWorld.
Happiness Is a Warm iPad
Those cautionary issues aside, it's only fair to say that the universe of Apple fans is quite large and will account for hefty sales all on its own. Millions of iPhones and Apple computers have been sold, after all, and many of their owners might want an iPad.
Perhaps that is why DisplaySearch predicts that the iPad will lead tablet PC sales beyond the five million mark in 2010. Overall, tablet PCs will steal market share from netbooks and e-book readers, the company said.
The sales potential for the iPad certainly exists, said Chris Connery, vice president of market research for PC and IT products at DisplaySearch.
"We showed almost 34 million netbooks shipping in 2009, and Steve Jobs likes to compare the iPad against netbooks," Connery told MacNewsWorld. "If a lot of people get on the iPad bandwagon and say the iPad has all the features they want in a netbook product, that will eat into this category, which we call the 'mini-notebook' category."
It's the Apps, Folks
Won't MacBooks and iPhones suppress iPad sales? Not if developers create apps for the iPad, the 451 Group's Hazelton said.
"It will be up to third-party developers to bring real value to the iPad," he explained.
Those third-party developers got a huge boost last week, when venture capitalists Kleiner Perkins Caufield & Byers (KPCB) doubled its iFund to $200 million to encourage the development of mobile apps for the iPad and other Apple products.
The company also announced that iFund-supported developers are working on more than 20 apps for the iPad, and said the iPad will lead the next wave of innovation in mobile computing. The iPad will target the entertainment, communications, social networking, commerce, healthcare and education fields.
"We expect all ventures to have an iPad strategy," KPCB partner John Doerr said.
There are about 3,100 apps for the iPad, of which more than 2,500 are paid apps, Mobclix spokesperson Colleen Wickwire told MacNewsWorld.
More apps are on the way, said Peter Farago, vice president of marketing for Flurry.
Flurry has seen a "significant spike" in developer support for the iPad since Apple unveiled the device in late January, he told MacNewsWorld.
What about Android phones, which are threatening the iPhone? Not to worry.
"App development is growing for both the iPhone and iPad [and] for Android," Farago said, "but it's growing faster for Apple than for Google."
The iPad as a Business Device
While consumer adoption is a good thing, the real money is to be made in the enterprise field, which is why Apple has been trying hard to get its computers and iPhones into the hands of business users.
The iPad may be embraced by businesses. Companies that have hopped onto the cloud computing bandwagon will be more likely to use the iPad because of its strong browsing capabilities, the 451 Group's Hazelton said.
"Like current iPhones, the iPad can be managed by IT using Microsoft Exchange and Apple's iPhone Configuration tool," he pointed out. "This means that some companies may allow employees to use the iPad since it can be remotely wiped if lost or stolen, and IT can enforce the use of password protection with the device."
The iPad will likely be an employee-owned device that will be used in the office and at home, in keeping with the trend toward such devices that is gaining ground in the enterprise marketplace, Hazelton said.
Looking to Apple's Q2 Report
Any time a company is in step with ongoing trends, especially if they're expected to gain strength -- as the trends toward cloud computing and employee-owned devices are -- it's likely to remain in good shape.
Apple's second-quarter financial report is due April 20, and it's expected to be a good one.
"We believe Apple's second quarter, which ended in March, was very strong," Barclay Capital's Ben A. Reitzes wrote in a note to investors Monday. "We expect a solid report from the company on April 20."
That solid report might get even stronger after Apple's iPhone OS announcement this Thursday. This OS will likely go into the new iPhone that will be unveiled in June.
Apple's share prices closed at yet another record high on Tuesday -- $239.54, up $1.05 from yesterday's closing.