by Brad Moon | October 17, 2013 3:07 pm
Official invitations to Apple’s (AAPL) next big event have been delivered, and October 22 is the day. “We still have a lot to cover” is the only hint of what to expect next week in San Francisco.
Almost everyone is expecting to see a new iPad and iPad Mini at the event. The crucial holiday season is fast approaching, and it has been a year since Apple last updated its tablets (other than a storage bump in January). Competitors like Amazon (AMZN), Google (GOOG), Samsung (SSNLF) and even Microsoft (MSFT) have released models that eclipse Apple’s current offerings. We could also see new MacBook Pros, an AppleTV refresh and release dates for the Mac Pro along with the latest version of Apple’s OSX operating system.
While the iPhone may get more attention, the iPad is also hugely important to Apple. As pointed out by Businessweek, iPads represented $31 billion in revenue in 2012 (20% of Apple’s total), making the iPad business alone worth more than the total revenue generated by 419 members of the S&P 500.
Moreover, quarterly iPad revenue historically has a 68% correlation to Apple stock price — that’s stronger than the stock’s relationship with iPhone revenue. In other words, if Apple moves a ton of new iPads over the Christmas holidays, there’s a pretty good chance AAPL will see a corresponding bump when Q1 2014 results are posted in January.
However, competition in the tablet space has never been tougher, iPad sales were down last quarter compared to last year, and cheaper devices running Google’s Android operating system have destroyed Apple’s once-dominant tablet position. According to numbers from Strategy Analytics, in Q2 2012 the iPad still held a 47.2% share of the world tablet market but by Q2 2013 that had eroded to just 28.3%, with Android competitors accounting for 67% of all tablets sold.
So there’s a lot riding on what Apple announces on the 22nd.
The full-sized iPad has had the same basic design since early 2012. Its Retina display with 264 pixels-per-inch density was a wow factor then, but high resolution is simply expected for today’s devices. Competing large tablets routinely offer displays of 300 PPI, and Amazon’s new 8.9-inch Kindle Fire HDX boasts a 339 PPI screen.
Don’t expect Apple to do anything about the display resolution race at this point, but the big iPad is expected to shrink, adopting the iPad Mini’s thin bezel form factor to shave nearly an inch off its width. A camera upgrade may be in the cards too, but the most significant change is likely to be an upgrade to the powerful 64-bit A7 processor that made its debut in the iPhone 5S.
However, the iPad Mini is the more critical upgrade.
Since being released last October, the iPad Mini has become Apple’s top-seller, offering a much lower $329 starting price without sacrificing margins too badly. But the original Mini was criticized for a low resolution display (163 PPI) — around half of what competitors like Google’s Nexus 7 offer for $100 less than the iPad Mini.
If Apple doesn’t address the display shortcoming, the new iPad Mini could bomb. At the same time, there are worries that a Retina display iPad Mini could face supply constraints. The iPad Mini could also get that A7 processor and a better camera, and there are calls to boost its RAM (the current 512MB is half the full-sized iPad’s and a quarter of most Android tablets) for better performance.
Wildcards include new color options (the Space Gray introduced with the iPhone 5S has been spotted, while some insist Apple will trot out gold iPads as well) and the possibility that Apple may include the new iPhone’s fingerprint sensor to help give its tablets a unique selling feature over the competition.
Don’t look for price drops on either of the iPad models — Apple likes to keep its margins high and, despite declining marketshare, is hoping the upgrades will be enough to boost sales without having to resort to competing on price.
As for everything else, it only makes sense that Apple will be rolling out MacBook Pros featuring Intel’s (INTC) power-saving Haswell chips — the MacBook Air line was already upgraded earlier this year, so this is a no-brainer. We should also see a release date for the made-in-America Mac Pro (announced in June) and availability of Mavericks, the newest version of Apple’s OSX PC operating system.
Of course, everybody is watching the Apple TV closely. Apple faces increased competition for its “hobby” streaming TV set-top box from the likes of Google’s $35 Chromecast and others. A smaller, cheaper Apple TV is a possibility to goose holiday sales and hold people over while they wait for the mythical Apple television.
Or, Apple could make life interesting for Nintendo (NTDOY) as well as Sony (SNE) and Microsoft by pulling the trigger on enabling gaming on the AppleTV. That would throw some unexpected competition into the Xbox One and PlayStation4 launches.
The full-sized iPad is important as a flagship device, and a significant upgrade will bring in new customers as well as hordes of existing iPad owners looking to upgrade to the latest and greatest — that alone may be enough to move the APPL ticker. Meanwhile, retailers and analysts are predicting the iPad Mini could be the top-selling gadget this Christmas.
If Apple gets it right with the iPad Mini and doesn’t run into shortages, this holiday quarter could be a very good one indeed. A game-playing AppleTV is a long shot, but could be the surprise announcement that launches a new (and lucrative) living room business for the company.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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