Apple Inc. (AAPL) has long been thought of as the king of the tablet space. After all, it was responsible for popularizing the tablet with the release of the first iPad, and years later, the device remains an important source of revenue for the company.
Yes, more than 60% of AAPL revenues still come from the iPhone, but AAPL investors can’t afford to ignore the importance of the iPad, with roughly 10% of sales last fiscal year coming from that product line.
Interestingly, iPads were Apple’s worst-performing product line in FY 2015, as net sales actually fell 23% year-over-year.
Believe it or not, Microsoft Corporation (MSFT) is partly to blame — and AAPL shareholders might have to get used to it.
Surface Seizing Market Share
As consumer trends clearly shift towards e-commerce and away from brick-and-mortar retail, keeping tabs on shifts in e-commerce is increasingly important.
Over the past 12 months, that’s an area where AAPL has been outperforming MSFT, especially when it comes to tablets.
According to 1010data.com, AAPL has the biggest market share in online tablet sales over that time period, with a 34% share. Next is MSFT with 19%, then Amazon.com (AMZN) with 11%, then Samsung (SSNLF) with 9%. No one else owns more than 6%.
Interestingly, MSFT has managed to remain competitive in the area despite its massive average selling price of $844. That’s three times the category average of $280, and more than double Apple’s ASP of $392. Amazon boasts an ASP of just $150 … but then again, Amazon has resorted to selling tablets in six-packs, so perhaps it’s not strictly comparable to Microsoft and Apple.
As an owner of AAPL stock myself, I find a few things worrisome. First of all, it’s disconcerting to see sales for the entire iPad category fall 23% year-over-year in 2015. It was understandable to see that sort of decline back when the iPhone was cannibalizing sales of the iPod, but there’s no such obvious cannibalization going on with the iPad nowadays.
Secondly, October was the first month in 2015 in which MSFT overtook Apple in online tablet market share. The release of the Surface Pro 4 and the Surface Book drove huge gains for the category, and MSFT ended up taking 45% of the online market to Apple’s 17%.
Since sales obviously tend to heat up in the last three months of the year as consumers rush to get gifts for the holiday season, AAPL shareholders should cross their fingers and hope the one-month trend doesn’t turn into a season-long one.
It sure doesn’t hurt Microsoft’s cause that its Surface tablets are all over NFL broadcasts, either. Microsoft has had an exclusive deal with the NFL for a few years now to prominently feature its tablets on the sidelines and in the studio, but it seems as if the Microsoft Surface is more visible than it has ever been.
While iPhones remain the core driver of AAPL stock, seeing Apple cede market share to its arch-nemesis Microsoft in an important segment like tablets still doesn’t sit well.
It’s time for Apple to step up its game.
As of this writing, John Divine was long AAPL stock and AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
