Rumor has it that Wall Street might see the newest iPad tablets from Apple Inc. (NASDAQ:AAPL) as early as next week. CEO Tim Cook remains “very bullish” on the category, but it’s going to take more than a refresh like last fall’s iPhone 7 to really move AAPL stock.
It’s going to take a revelation.
The challenge that management faces here isn’t about innovation. I’m sure the iPads will pack just enough fresh functionality — battery life, screen response, processing power — to keep the upgrade cycle rolling.
Remember, the iPhone 7 didn’t deliver any real “killer apps” beyond incremental improvements here and there, but sales in its launch quarter still spiked 5% above year-ago levels.
For tech traders who have learned to obsess over every tick on the AAPL balance sheet, that’s a product worthy of a standing ovation. A year ago, iPhone sales were flat at best, so that 5% bump was a big driver in the stock’s 30% surge since Cook announced the new release of the phones on Sept. 7.
However, even if the new iPads perform on roughly that level, they have a much deeper decline to overcome and a much lower base to build on.
That’s why the problem for AAPL stock isn’t a problem of innovation. The most miraculous must-have tablet computer anyone in Cupertino can conceive is still a hostage to brute economic scale.
On the top line, 70% of AAPL is phones. Barely 7% of the company’s revenue comes from tablet computing, and that piece of the overall footprint has actually shrunk as media and other services push it aside. The iTunes/ApplePay/AppleCare ecosystem now plays a bigger role in the sum of the parts than all the iPads put together.
And while the service side is growing at a healthy 18%-26% per year, high-end tablet manufacturers like AAPL have struggled to hang onto the sweetest slice of a declining global market.