This week is a big week for Apple (AAPL), despite the fact that Apple stock fell nearly 3% on Tuesday in the wake of concerns that demand for the recently launched iPhone 6s might be falling at a faster pace than first presumed.
Today, Apple will begin taking orders for the ballyhooed iPad Pro, with in-store availability set to materialize later in the week
The iPad Pro is a proverbial “big deal” for Apple, as well as the computer industry, because it’s arguably the first tablet/laptop/desktop hybrid that doesn’t force users to trade off functionality for portability. And, in true Steve Jobs fashion, CEO Tim Cook has all but taunted PC makers as part of the buildup to the device’s debut.
Owners of AAPL stock love the smarmy confidence, of course, but as is so often the case, those who talk too much eventually say something that comes back to haunt them.
Don’t Ask a Question You Don’t Want Answered
It’s been a theme voiced many times before, but in an interview with Allister Heath of the UK’s The Telegraph that was posted on Tuesday, Apple CEO Tim Cook bluntly said (in reference to the iPad Pro) “I think if you’re looking at a PC, why would you buy a PC anymore? No really, why would you buy one?”
Most investors and observers dismissed the flavor of the words for exactly what they were … corporate trash talking that’s simply part of Apple’s ongoing war with Microsoft (MSFT) Windows-based PCs.
The rhetorical question does merit answers, though, if only as a thought exercise. And as it turns out, owners of Apple stock who were cheering Cook’s challenge may well have good reason to temper their enthusiasm regarding the iPad Pro.
If Cook was explicitly talking about Windows-based PCs with the jab, the answers is, a whole slew of people who have to use software that only runs on Windows still want to buy a PC.
Yes, they’re out there, and there are more of them than you think. Granted, these are primarily businesses (computers are good for things besides playing Candy Crush, you know), but we’re still talking about a lot of businesses that simply can’t break free of the Windows environment.
It should be noted that Windows software can often be run on a Mac through the creation of a virtual Windows environment with iOS, but this doesn’t always work, and it still requires a paid-for Windows license to utilize. It can be more headache and expense than it’s worth.
Another group that still wants to buy a PC: Anyone who doesn’t have $1,000, give or take.
The iPad Pros starts at $800, though that price tag doesn’t include the $169 keyboard necessary to fully replace a PC in terms of functionality. There’s no mouse included, either, nor the near-requisite stylus.
All of a sudden, the price tag is pushing and even exceeding $1,000, while relatively potent comparable desktops and laptops can be bought for less than half that price.
The iPad Pro also falls short for users who actually need a little bit of memory built into the machine.
The low-end version of the iPad Pro – the one that starts at a price of $799 — comes with a scant 32 gigabyte drive, and though more memory is available, the price tag goes up faster than its storage capacity does. The 128-gigabyte-drive model will cost $1,079 for the Wi-Fi+LTE version.
That’s plenty for a traditional tablet, but 128 GB drives are the starting minimum for most modern PCs; 512 GB drives are essentially required for business users that need to store large files like digital video.
For that same reason, users who like to download and save digital movies may find the iPad Pro’s drive is hardly adequate (though this admittedly isn’t the IPad Pro’s target customer).
Bottom Line for Apple Stock
None of this is to say the iPad Pro won’t be well received by its target market. It’s a small target market though, and not big enough to move the needle much for Apple stock either way, success or failure.
To that end, it should be noted that Apple has only ordered an estimated 2.5 million units of the iPad Pro for 2015. It’s going to hold off on additional orders until it can gauge interest.
It’s an oddly low number, however, for a device Tim Cook essentially used to taunt Microsoft and Windows users with. Apple has even sold 7 million of its oddly unnecessary Apple Watch since launching it in the middle of the year, and last quarter it sold a respectable 5.7 million Macintosh computers.
If the iPad Pro is so much better than a PC and truly bridges the gap between tablet and computer, wouldn’t it stand to reason that the company could be confident the device would sell at least as well as — if not better than — similarly priced Macs during the busiest shopping period of the year?
Never even mind the fact that 2.5 million units is a pittance compared to the 71 million PCs sold worldwide last quarter … a number that will certainly expand in Q4.
Tim Cook may end up regretting the fight he just picked.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
