Apple Earnings Preview: What To Expect of the iPad
We are just over one week away from Apple’s earnings day. In the series “Apple earnings preview”, I have already addressed a few key topics of conversation, including:
This time, I turn to the iPad. Apple’s crown jewel of the early 2010s is now a shadow of its former self. To be fair, I would not necessarily say that the product category is struggling. In fact, the iPad continues to be the dominant device among tablet brands globally, with nearly 60% market share. But segment revenues as a percentage of total has come down from over 20% in 2012 to barely 7% last quarter.
As I have been doing lately, I will structure my preview of Apple’s third fiscal quarter as follows: (1) a review of what happened in the second fiscal quarter, (2) what could go right and (3) what could go wrong in the most recent period.
What happened last quarter?
In fiscal second quarter 2020, the iPad suffered from the COVID-19 crisis like the other product categories outside wearables and home (see chart below). Still, Apple seemed optimistic. Here are some positive remarks offered by CFO Luca Maestri about the iPad in the last earnings call:
What could go right
- The upcoming back-to-school season could be a challenge due to COVID-19 disruptions, especially in the US. However, with in-person classes possibly being replaced by distance learning to an extent, the iPad could take center stage. Preparing for the new school year dynamics could be a bullish development for Apple’s tablet.
- The new iPad Pro models were launched in late March. Year-over-year, sales should look better, since the previous refresh of this product category happened in October 2018.
What could go wrong
- My main concern regarding the iPad is more macro-level than product specific. It is still unclear how much the economic crisis caused by COVID-19 may have impacted consumers’ willingness to spend on tech devices. The major banks have reported second quarter results, and clearly spending has not been on the rise – even though purchases from home through the digital channel still look good.
- Apple Stores in the US went through another wave of temporary closures in late June. I do not believe that the issue will impact sales substantially in the second quarter, but some headwinds would not be a surprise.
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