Apple Inc.’s (NASDAQ:AAPL) consumer-focused iPad Air 2 was released in 2014 and the iPad Mini was last refreshed a year ago. As its consumer tablet lineup stagnates, Apple could be bolstering its business offering with a new professional model — a 10.5-inch iPad Pro.
Mac Rumors first reported on a new research note released by KGI Securities analyst Ming-Chi Kuo. In the note, Kuo — who is recognized as having an excellent track record for predicting Apple product releases — says he is expecting Apple to release new 12.9-inch and 10.5-inch iPad Pros in 2017. He also is calling for a new 9.7-inch iPad, but that model may remain as a budget-level offering, with a less powerful CPU.
The iPad Mini doesn’t even factor into his calculations.
Apple Shifts Its iPad Strategy
There has been some speculation that AAPL will eventually drop the smallest and most affordable iPad altogether, given the popularity of its iPhone Plus phablet and the apparent overlap between the two devices.
Kuo writes: “If the iPad comes in a larger size, such as a 10.5” model, we believe it will be helpful to bid for tenders within the commercial and education markets.”
If true, Kuo’s prediction would see Apple continue a shift in its tablet strategy to focus on enterprise, business, education and professional users instead of consumers. This represents a significant change, given that the initial success of the iPad was built on consumers snapping up the devices for casual uses such as gaming, watching video and web surfing.
However, the tablet market has changed dramatically over the past several years. Consumers are reluctant to upgrade in a “timely” fashion, and sales have been consistently declining as a result.
With the release of the 12.9-inch iPad Pro, followed by the 9.7-inch iPad Pro, Apple built on a business-focused strategy that included an enterprise app and iPad sales partnership with International Business Machines Corp. (NYSE:IBM). The company also worked with rival Microsoft Corporation (NASDAQ:MSFT) to promote Office apps for iOS and the iPad Pro. The efforts have begun to pay off and now Apple has reached the stage where almost half of iPad sales are to business and government customers.
These customers primarily invest in the more expensive (and higher margin) iPad Pro models instead of the entry-level iPad Air or iPad Mini. Unlike consumers, they also tend to upgrade hardware regularly. Both traits are positives for Apple’s bottom line.
Given this shift in iPad buyers, Ming-Chi Kuo’s prediction seems a safe one. Enterprise customers who are deploying the iPad Pro with a Smart Keyboard case as a compact laptop replacement want a choice smaller and less expensive than the 12.9-inch iPad Pro, but they may find the current 9.7-inch version’s display to be cramped. Releasing a third option — a 10.5-inch iPad Pro — would satisfy this need and has the potential to bolster Apple’s position in that lucrative market.
Under Ming-Chi Kuo’s scenario, consumers hoping to score an updated iPad in 2017 may have to make do with that rumored budget 9.7-inch model. But if they want the latest processor, they would need to pay the premium to buy the 10.5-inch iPad Pro.
This year, the premium to go from the aging iPad Air 2 to the more capable 9.7-inch iPad Pro was $200. Expect the jump to a new 10.5-inch iPad Pro to be even greater. This may further hurt Apple’s consumer sales.
But with the deeper pockets government, enterprise and professional buyers looking to invest in the iPad Pro, that’s a sacrifice Apple seems likely to make.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.