Category Archives: iPad

Apple June 2016 Quarter Chart Review

I’m on vacation this week in Europe, but I took a quick break to cover Apple and Twitter’s earnings this evening before heading to bed. I’ve tweeted quite a few charts tonight, but thought I’d pull some of the key ones together with some commentary for readers. A full deck of quarterly charts will go out to subscribers to the Jackdaw Research Quarterly Decks Service in the next few days as Apple releases its full data in an SEC filing, so look out for that if you’re a subscriber, and sign up here if you’re not.

Note: in this post, as in all my posts, I use calendar quarters for ease of comparisons with other companies and easy intelligibility by those not familiar with quirky fiscal years. As such, the labels and my commentary does not align with Apple’s fiscal calendar.

iPad returns to revenue (but not shipment) growth)

Last quarter, Tim Cook promised that the iPad would have its best year on year “compare” in over two years, which by my calculations meant something better than an 8% decline. Turns out iPad revenues actually returned to positive growth this quarter, though shipments still dropped, thanks to a really strong boost in ASPs:iPad shipments Q2 2016iPad ASPs Q2 2016Screenshot 2016-07-26 22.38.46That iPad ASP growth seems to have been driven by the launch of the iPad Pro, which in turn was likely designed in large part to drive higher ASPs as shipment growth has stalled. In other words, the strategy seems to be working. It’s also interesting that Apple reported that half iPad Pro sales went to people buying them for work, which is another validation of Apple’s strategy, but also points to a big opportunity for Apple, which is selling more devices into the enterprise, both to individual and corporate buyers. That’s something I first talked about in the context of Apple’s IBM deal, but it goes much further than that (as evidenced by subsequent Cisco and SAP deals).

iPhone sales and ASPs down – the iPhone SE effect

Unsurprisingly, iPhone sales were down again, though perhaps not as badly as they seemed to be given the changes in inventory. But the most notable thing was the drop in average selling prices – the opposite of what happened with the iPad in the quarter:iPhone ASPs Q2 2016Just as the positive change in iPad ASPs was due to the successful launch of a new product (the 9.7″ iPad Pro), so is the larger than usual quarterly drop in iPhone ASPs due at least in part to the launch of a new product – the iPhone SE. It’s not all that – there was some impact from the inventory changes, as mentioned on the earnings call – but the magnitude of the drop is an indication that the iPhone SE has also had a successful launch, and has been something of a hit. That’s a good thing, in that these sales have filled something of a hole in iPhone sales in the quarter – which was arguably the purpose – while proving that Apple can tap into a market for iPhones at a lower price point with slightly lower specs and feature functionality.

Apple Watch and Other Products

One last interesting point with regard to a specific product: the Apple Watch. It’s buried in Other Products, but perhaps a better way to look at it is that it now leads the Other Products category, which otherwise features a number of other smaller products. That’s been a double-edged sword for the reporting category over the past 18 months or so, as Apple Watch has first driven higher growth and now is driving negative growth for the category again:Other Products growth Q2 2016This is, to some extent, a temporary anomaly due to the launch of a brand new product and the subsequent (presumed) shift to a different time of year for the follow-up product as the second version of the Apple Watch launches in the fall. But it’s an indication of just how important the Watch is to that Other Products category.

Short-term versus long-term

In concluding, I’m going to link back to my post last quarter, in which I both reviewed the good news and bad news in the results and looked forward to the rest of the year. The point remains the same: with Apple there are two current pictures, which are very different. On the one hand, there’s the short-term picture, characterized by the anniversary of massive growth in iPhone sales driven by the iPhone 6, and also an unusually long lull in the Mac upgrade cycle driven by delays in getting new chips from Intel. That short-term picture hasn’t changed, and is so far fairly predictable.

The bigger question, though, is what happens later this year as some of the unpleasant short-term factors start to go away. As I said last quarter, with the iPad performing better, that’s the first of those positive levers coming into effect, and if that higher ASP trend continues, that will be more grist to the mill. However, the far bigger effect obviously comes from the iPhone, which I still believe might return to revenue growth later this year or early next year. Lastly, the other major product lines – Mac and Apple Watch – have potential to contribute further to that growth. We should finally see new Macs in the fall if not before, which will unleash significant pent-up demand, while new Apple Watches combined with a much more capable watchOS 3 could drive more sales there. In other words, over the long term I remain very bullish about Apple’s prospects, and we could start to see signs of that in the September quarter, but especially in the December quarter and beyond.

Apple Earnings: Bad News and Good News

Apple’s earnings for its fiscal second quarter (which I will refer to from here out as Q1 2016, as is my custom) were rocky. As Tim Cook said, it was a challenging quarter. There was bad news not just in iPhone, where Apple had already suggested there would be, but in other areas too. It’s worth enumerating exactly what those sources of bad news are to understand what’s going on at Apple. But there was also some good news in the earnings, which is particularly important when looking at the longer term. This post outlines both, starting with the bad news.

All three major product lines shrinking

Yes, iPhone shipments and revenues dipped year on year for the first time, and that was a major cause of the overall problems. But what compounded it was that Apple’s other two major product lines were shrinking too in the quarter:Year on year growth by product lineThe iPhone decline was new, but the trend line in Mac sales has been worsening consistently over the past year, and has now been below zero for the past two quarters. That’s significant, because for a time the Mac was offsetting shrinkage from the iPad, such that combined revenues from the two were rising or steady. Now that this aggregate number is also in the red, the declining iPhone sales just exacerbate the problem.

iPhone ASPs falling

Besides the stellar growth in iPhone sales the iPhone 6 prompted, it (and the iPhone 6s) also helped drive significantly higher average selling prices. The chart below shows ASPs on a cyclical basis, so you can see the trend over the past several years and where Q1 2016 should have landed, and where it did land:iPhone ASPs As you can see, at the end of 2014 ASPs dramatically increased as a result of larger, more expensive phones, and higher storage tiers. The 2015 ASPs were above 2014 ASPs for the entire year, but Q1 2016 saw ASPs dip, below the previous year’s number (and below even 2011, which was next highest for Q1). All of this suggests a combination of mix shift toward lower-tier and older iPhones, as well as possible discounting in some markets. Since ASPs have a direct impact on margins, that’s not good news. Worse still, Apple is projecting even lower ASPs in Q2 driven by a combination of inventory changes and sales of the iPhone SE.

Softness in China

China has been a major driver of Apple’s growth over the past couple of years. The relationship with China Mobile, expansion of better cellular networks in China combined with expansion in Apple’s distribution, and then the launch of larger phones all contributed to outsized growth there. Over the last couple of quarters, though, things have changed dramatically:Revenue growth by regionWhereas China accounted for half or more of the company’s revenue growth for several quarters, it’s now accounting for half its year on year shrinkage. One of Apple’s biggest drivers of growth has become a driver of decline. Again, the biggest culprit is iPhone sales and the massive iPhone 6 year, and the underlying decline in Mainland China is much less dramatic than reported results for the Greater China region, which includes Hong Kong. But for the time being, this is more bad news.

What you have overall, between the three major declining product lines, falling iPhone ASPs, and softness in Greater China, is a perfect storm of sorts that’s driving the current problems for Apple. What, then, is the good news in all this?

iPhone decline is temporary and cyclical

As I wrote earlier this week, the most important thing to understand about iPhone growth is that it’s temporary and cyclical. That is, the massive growth Apple experienced over the last 18 months or so was entirely down to the introduction of larger phones, and demand is now simply returning to its prior trajectory. The iPhone shipments number Apple reported was bang on with the projections I shared earlier this week and therefore also absolutely in line with the pre-iPhone 6 trend. That suggests (and Apple’s guidance for next quarter confirms) that iPhone growth should be back on track later this year, at high single digits or low double digits. The iPhone SE will depress margins, especially because it’s going to sell best during the annual trough in high-end sales, but for the same reasons, ASPs should recover by the end of the year when a new flagship phone launches. In the meantime, it should help fill that usual trough in sales a little, boosting sales above where they would otherwise be.

The other thing to bear in mind is that, though the iPhone 6 upgrade cycle was itself something of a one-off, all those who bought phones during that cycle will want to upgrade at some point. What was notable about this down quarter in iPhone sales was that Tim Cook said the last six months were the highest ever for Android switching. That implies that what fell short during that period was upgrades. That, in turn, suggests that when this base of iPhone 6 buyers finally does upgrade in large numbers – likely between 2-3 years from their purchase – we could see another big bump in sales, an aftershock of sorts. The biggest impact would hit in a roughly eighteen month period from this September through the following March, which provides more reason for optimism about longer term iPhone growth.

Signs of iPad recovery

It’s easy to focus on the decline in iPad sales, which has been problematic for Apple over the last several years, especially as the Mac has stopped growing. But the reality is that there are signs of recovery in iPad, albeit not growth just yet. But the rate of year on year decline has been slowing steadily, and on the earnings call Apple took the unusual step of signaling where it thinks they’ll come in next quarter, at least directionally. Here’s the trend line for the past couple of years:iPad year on year growthThat rate of decline has improved for three of the last four quarters. Apple’s guidance for Q2 2016 was that this would be the best year on year compare in two years. That suggests a shrinkage of less than 14% (since Q3 2014 was the previous low within that period, at 14% – I’m assuming the 8% it achieved in Q2 2014 is out of the 2-year window). (Update: I’m told by Jason Snell that it was “over two years” and the transcript confirms that, so the 8% might well be within the window after all). That’s obviously not stellar, but it continues and even improves the trend over the past year or so of slowing declines. As this decline slows, that puts Apple in less of a hole that it has to dig out of.

Reasons to believe the Mac will recover

There isn’t anything in the recent Mac results that provides reasons for optimism – as I said above, the results show a steadily worsening trend in the case of the Mac. However, I believe at least part of the reason for the decline is that as of the end of the quarter, Apple hadn’t updated most of its Mac lineup in a long time. The Macrumors Buyer’s Guide listed the whole lineup as “don’t buy” because of the length of time since the last upgrade. Obviously, the MacBook has since been updated, but the rest of the lineup hasn’t. As with iPhones, the evidence is that new customers aren’t the problem here – Cook made much of the high “new to Mac” numbers this quarter. The issue is once again upgrades, and there we should see better numbers later this year as Apple upgrades the product line with new Intel Skylake chips. The timing of that change is hard to predict, but it should help the Mac revenue growth line turn positive again, helping to offset the smaller iPad decline.

Other new products driving growth

The Apple Watch isn’t broken out in Apple’s results explicitly, but it has contributed meaningfully to the overall revenue line over the past twelve months. The Other Products line where it sits includes both the iPod and accessories, which had been declining fairly significantly, but that segment’s revenues have been growing year on year since the Apple Watch launch. In the first part of this year, that growth is likely to be modest, but once again come the fall things should look better as Apple updates the hardware and drives new sales.

Another interesting new product that’s driving growth is Apple Music, which now has 13 million paying customers. That’s good for a run-rate of a little over $1.5 billion on an annualized basis, and the growth rate (around 25-30k new subscribers per day) should see Apple get close to 20 million by the end of the year, which in turn would drive annualized revenue of $2.3 billion. Given that iTunes Music generated around $4 billion at its peak, and is now generating much less, this new service is on track to begin driving meaningful growth for Apple in the music category again. More broadly, Services continues to be one of the drivers of growth at Apple, driven not just by Apple Music but to a great extent by the App Store too. The good thing about that growth is that it is driven by the growing base rather than sales of new devices, so to the extent that Apple is still adding new iPhone customers, it should continue to grow even as iPhone shipments slow down for a period.

All signs point to a return to growth in the fall

All of this taken together points to another couple of tough quarters for Apple as the perfect storm of declines across its three major product areas, its second most important region, and iPhone ASPs hits home. But it also points to reasons for optimism come the fall, when the iPhone should start to rebound, Mac sales should be stronger, a new Watch should drive sales there, and iPad shrinkage will be lower. The narrative Apple needs to be spinning is less about Services, though those are an important component of future growth, and more about the fact that the current dip in revenues is temporary. There were some references to that in the earnings call yesterday – Tim Cook used the phrase “pause in our growth,” suggesting that he believes this. But of course Apple doesn’t provide guidance beyond a single quarter. That may need to change if it wants to get investors back on board.

Two Weeks with the iPad Pro

When the new 9.7″ iPad Pro was released a few weeks ago, Apple was kind enough to send me a review unit, which I’ve been testing since. I thought I’d share some of my thoughts on using this device for the past couple of weeks.

Update: I added a little something on the Apple Pencil – I initially left it out because I simply haven’t used it much, but it’s worth noting that fact in and of itself. The addition is near the end of the review.

Initial impressions

My first experiment was to try a day of working solely with the 9.7″ iPad Pro, and I got through a whole day of fairly varied work without needing to use any other computing device. That surprised me to some extent – other than on the occasional business trip, I hadn’t really ever tried to use an iPad as my sole computer, and I really wasn’t sure how well it would go. That first day turned into several days and eventually two weeks, but even after that first day I immediately knew I also wanted to test the larger iPad Pro, and so I purchased one from the local Apple Store (I’ve since returned it), along with a Surface Pro 4 I acquired for testing too. During that period, I used one or other of the iPads virtually exclusively, with a couple of brief exceptions, and found this barely limited my ability to get done what I wanted to.

The first thing I noticed was that the device felt more intimate and personal – instead of staring at a screen sitting a couple of feet away and using peripheral keyboard and mouse that felt very disconnected from the computer, I was engaging entirely with this screen that was immediately in front of me, including touching it occasionally. That felt very different from my usual computing experience in subtle ways. Obviously you get some of the same feeling from using a laptop, but with the iPad it felt subtly different, and I think part of that is because I’m used to thinking of iPads as devices that you hold. Although a lot of my work was done with the iPad resting on the keyboard case, throughout the day I also picked it up from time to time without the case and used it for catching up on Twitter or reading things, and in the evenings it had the flexibility to be used that way too.

For this reason, I love the new modular approach to cases and covers Apple now has – it used to be that you either had a case that included a cover, just a cover, or some sort of keyboard case. But the new modular cases from Apple allow you to have a case permanently attached to protect the body, and then to swap out the plain cover and the Smart Keyboard case at will. This feels a lot more flexible and means you just always use whatever you need at any particular point in time, whether that’s just the case when you’re reading something, the case and standard cover when moving around, or the Smart Keyboard cover and case when you know you’ll need to type. This flexibility is one of the biggest things that sets the iPad Pro apart from the Surface Pro too – the Surface always feels more like a computer than a more personal device like a tablet, whereas the iPad Pro makes that transition seamlessly without feeling either awkward or as though it’s missing an important appendage.

The other big difference I noticed in switching between the iPad and Surface was that the default state on the Surface is an empty screen – the desktop. You have to actively go looking for something to do in the Start Menu, where there’s little consistency in how items are presented with all the different sizes of live tiles. Apps you install don’t even show up there by default and it takes hunting around and then replacing default apps with the ones you choose to get them accessible. By contrast, on the iPad (as on any iOS device) you’re always presented with a screen full of possibilities in the form of a set of app icons. You can, of course, rearrange these icons and swipe through several pages of them to find the one you want, but ultimately the default state is being presented with lots of things you could do next. This, too, makes the iPad feel like a more personal device than the Surface.


I found the keyboards on both sizes of iPad very usable. I’m typing this review on the smaller of the two keyboards, and I’m able to type more or less as fast as on my Mac or MacBook Air keyboards. I don’t find the lack of key travel a problem at all, and I like the fabric on the surface of the keyboard. The smaller of the two is definitely more space constrained, but I find that I can adjust very quickly when switching between devices, and the fact that the keys are raised and nicely separated is very helpful. My one niggle with the keyboards is that the globe icon key for switching between virtual keyboards (e.g. invoking the emoji keyboard) is at the bottom left corner and as such the other keys are shifted over to the right a little from other Apple keyboards. That has meant I’m often either hitting that key by mistake or hitting the control key when I mean to hit the option key, for example. I’m a big user of keyboard shortcuts on the Mac and I found most of them translated easily to the Smart Keyboard, but this one change has caused more errors than anything else in the keyboard. My other frustration with keyboard shortcuts has been that option-deleting hasn’t worked the same was as in OS X, in that instead of deleting whole words at a time, it only deletes single letters as if the option key weren’t depressed. That’s one of those muscle memory things that’s been hard to adjust to on the iPad, and should be easily fixable through a software update.


For the tasks I undertook on the iPad Pros, there was never a performance issue that felt related to hardware. The devices are snappy for all sorts of activities, app switching happens quickly and without glitches, and on the few occasions where you do encounter bugs they feel like they’ll be resolved soon. I loved being able to use the familiar command-tab shortcut for app switching, and it even implements in a clever way when you’re in split-screen multitasking mode. My one big frustration about multitasking and split screen use is the way you have to scroll through an endless list of apps to find the one you want to have show up on the right side. Some sort of search function here is critical for anyone with a large number of supported apps installed. The work that MacStories has published this week on iOS 10 includes a much better interface for this scenario, and Apple would do well to implement something like it.

I found that many of the apps I use on a regular basis already support split-screen multitasking, and that interface works particularly well on the larger iPad Pro, where the apps get to run more or less full size from a 9.7″ iPad perspective side by side. I did find that some interfaces looked squashed on the 9.7″ iPad Pro, especially web interfaces that are designed to run full screen on such a device, but many others worked very well, and it made comparisons and copying and pasting between apps very easy. I had to find a workaround for working with two web pages at once, which involved installing the Chrome browser for the second screen – as others have pointed out, it would be nice to have the ability to put two Safari tabs side by side in the split screen view.

Limits to productivity

I mentioned earlier that I was able to accomplish more than I expected on the iPad Pro. But there were a few tasks that I found either too cumbersome, too risky, or simply impossible on the iPad, and for which I switched back to a Mac. I also found that a key element of my workflow was impossible to replicate on the iPad, and this was ultimately the biggest issue for me:

  • Recording and editing podcasts – this is something I do at least twice a week in the case of recording and once a week in the case of editing, and it’s essential that it work well. There are ways now to hook up even powered microphones to the iPad Pro, but you can’t feed two apps at once with that microphone, so it doesn’t work for talking on Skype and recording podcast audio at the same time, as others have mentioned. When it came to editing, the iOS version of GarageBand simply doesn’t supporting importing multiple audio tracks and editing them together, even though I use GarageBand on the Mac usually. For all these reasons, I recorded and edited all podcasts on the Mac during my two-week experiment. I mentioned some of this on Twitter, and was pointed to Ferrite as a possible solution for editing podcasts on the iPad Pro, so there may be workarounds for all this, but it was too much work and too risky to test for a critical podcast recording.
  • Document editing workflow – as I’ve written about elsewhere, my workflow involves using the iWork suite to create and edit files, whether spreadsheets, presentations, or documents. But I use Dropbox for storing and syncing those files across computers and making them available on mobile devices. This works fine on the Mac, which has full support for Dropbox at a system level, but it breaks down on iOS. The problem is that Dropbox isn’t available as a source of files to open within the iWork apps on iOS. You can open files from within the Dropbox app, but this process creates a copy, so you’re not modifying the original in real time, and have to export it back to Dropbox when you’re done editing if you want to update the original. There are several possible solutions to this – use Office instead of iWork because Office has proper Dropbox integration, or use iCloud instead of Dropbox because it’s supported natively in the iWork apps. But I prefer iWork for its ease of use and look and feel, and don’t yet fully trust iCloud for syncing really important documents. So I’m sort of stuck when it comes to my current workflow. If I knew I’d be committing fully to an iPad as my only device, I might feel differently, but for now it means it’s tough to carry over my workflow from other devices, which is something many iPad Pro users are likely to need to do. In addition, there are still detailed functions within iWork which simply aren’t available in the iOS versions, even though feature parity is pretty extensive. I found that a little frustrating too.
  • Working with Apple News – I’ve recently started publishing this blog and our podcast to Apple News, something which comes with its fair share of pros and cons no matter which device you’re using (something we talked about on the podcast recently). But on iOS, the Apple News Publisher online interface at doesn’t work. If you visit on any iOS device (even the larger iPad Pro) you get redirected to the mobile site, which is mostly a holding page, but if you request the desktop site through Safari, you get the full site. However, even then, the Apple News Publisher site clearly isn’t meant to work on iOS, and frequently crashes and has other issues. This means if you want to use Apple News Publisher, you have to find some other way to do it than through the WYSIWYG editor online. It’s a new platform, and so maybe better support for iOS devices will come soon.

The iWork feature parity issue and this Apple News problem are indicative of one of the biggest issues I encountered productivity on the iPad Pro – for all that Apple wants to sell these devices as fully-fledged productivity machines, it’s Apple’s own services and apps that continue to hold it back. It’s frustrating that there are a number of Apple’s own apps which don’t support split-screen multitasking yet either. Ironically, you’d be better off in some ways using the Office suite than iWork on these iPads, and that raises an interesting possibility – that the future of mobile productivity marries Apple devices with Microsoft (or other third party) software.

Quick thoughts on the Apple Pencil

My review unit came with an Apple Pencil, and I was particularly keen to try it out. The reality is, however, that there’s very little that I have ever used a stylus for in the past, and that has less to do with the quality of the styli available and more to do with the way I work. I type much more quickly (and legibly and searchably) than I write by hand, and so I always type when I possibly can. I did take notes for a few hours using the Pencil and iPad in place of a pen and notebook, and found it a really solid experience. I was using Microsoft’s OneNote app, which was mostly fine but frustratingly doesn’t explicitly support the Pencil or the associated palm rejection. I tried using the Surface with its pen later for the same task, and found the tactile feel and the resulting handwriting significantly inferior to the Pencil. That’s a bit surprising given how much longer Microsoft has been doing Surface pens, but the difference was undeniable to my mind.

However, I’m not an artist either, and other than for the novelty value, and the occasional bit of doodling in Pigment just for fun, I find myself using the Pencil very little. I think it makes perfect sense that it’s an optional accessory rather than a bundled feature of the iPad Pro – many users aren’t going to need it. I used it enough to be convinced that it would work well should I need it, but I’m fairly certain that I’ll continue to use it only infrequently. My one frustration was charging – it’s not really practical either to charge the Pencil in the standard way (i.e. plugging it into the iPad) while using the iPad or while charging the iPad. Several times, I wanted to charge both devices at night but couldn’t without using the specialized adapter for the Pencil with its own charging cable. That feels like a mistake (and I’m convinced I’d lose the adapter and/or the Pencil’s cap pretty quickly if I were using it more regularly).


After using the iPad Pro(s) more or less exclusively for two weeks, I can say that (with very few exceptions) I’d be happy to do so again in future. I do like the flexibility of my usual Mac Pro setup, but I got a great deal out of using an iPad instead for  a while, not least a greater sense of focus on the task at hand and that sense of intimacy I mentioned earlier. Were I to find myself in a situation where I had to commit to one of these devices full-time, I’d definitely pick the larger iPad Pro – the increased screen real estate allows multitasking and other features to really thrive, and its similarity to the size of a standard laptop helps too.

The reality is, though, that these devices don’t have to fill that role for me. I have other computers available to me, and for a variety of reasons they’ll continue to be my main ones. As such, the smaller iPad Pro feels like a great fit as more of an occasional device – one to use in the evenings, or when I need to go out for a while but stay productive, or when I’m traveling. I’d almost always resisted only taking an iPad with me on business trips in the past, but could see myself relying solely on an iPad Pro for at least short business trips in future.

Apple’s Playbook

One of the most interesting slides at yesterday’s Apple event was one that Tim Cook used in the context of introducing the new Apple TV:Apple PlaybookWhat I found striking about this slide was that it was a great summation of Apple’s playbook for its tightly integrated approach to hardware and software:

  • Powerful Hardware
  • Modern OS
  • New User Experience
  • Developer Tools
  • App Store.

This playbook was first introduced with the iPhone, although arguably it wasn’t fully fleshed out until 2008, when the developer tools and App Store elements arrived. This approach was then applied again both to the iPod Touch when that launched, and when the iPad launched in early 2010, using the same “modern OS” – now called iOS. Later in 2010, Apple began applying some of these elements back to the Mac (announcing these changes at an event called “Back to the Mac”), starting with the Mac App Store, and continuing since then with a variety of elements borrowed from iOS.

With this as background, it’s no surprise that Apple felt bound to include an App Store in the first version of the Apple Watch, but out of an abundance of caution and a sense of urgency, it was a diluted version of the App Store concept. Only with the launch of WatchOS 2 this month will Apple fully embrace its own playbook for devices when it comes to the Apple Watch. And as of yesterday, we now know that Apple is applying this same playbook to the Apple TV too, something that’s seemed inevitable for quite some time now.

With the release of WatchOS and the announcement of the new Apple TV, Apple now has the same strategy for hardware and operating systems for every element of its portfolio for the first time. The question now becomes which new categories Apple might apply this strategy to in future, and one obvious possibility is cars. Look at that list of bullet points that make up the Apple playbook – is there any element of this that doesn’t apply to cars?

The other thing that’s interesting about all this is that this strategy puts developers at the heart of Apple’s formula for success. Three of the bullet points are about what Apple brings to the table for end users – the hardware, the software, and the user experience these two elements tightly integrated create. The fourth and fifth bullet points are about what Apple provides for developers – the tools to create the apps, and the channel to get these apps in front of customers and make money from them. I think this is a reflection of a genuine understanding on Apple’s part that its devices would be far less meaningful without these third party apps.

Given what’s happening now with Apple Watch and Apple TV, I’m expecting to see a ton of innovation from developers in creating new experiences that are hard to imagine today. We’re about to see the same sort of flourishing of new apps and business models around these devices that we’ve already seen around the iPhone and iPad. And that in turn will reinforce the value of these devices for end users, while creating significant new revenue opportunities for developers.

Apple September 2015 event quick take

Note: I’m cross-posting this piece from the Jackdaw Research website, where it went out earlier today as a media comment on Apple’s event. I should have more in-depth analysis on the event here and on Techpinions in the next few days. My preview piece from Tuesday is here.

Apple’s September event always sets the tone for its entire year – new iPhones are announced, and the iPhone makes up the majority of Apple’s revenue and profits, and the performance of the iPhone business largely determines overall growth rates, at least for now. But today’s event, like last year’s, added another new product category that should drive significant new revenue for Apple and for developers, and arguably the new Apple TV was one of the biggest and most important things announced today.


The new iPhones have enough new features to make them an interesting upgrade for those who always have to have the latest device from Apple, with 3D Touch the biggest new feature. The name of Force Touch badly needed to change, since it always sounded a little like a form of assault. I’m no convinced 3D Touch is the right name, but it conveys the concept reasonably well, in that the functionality is about a more layered interaction. 3D Touch itself should make navigation and interaction much quicker and easier, but it will mean something of a learning curve for users, because there won’t be any visual cues indicating what a 3D Touch might do, a problem the Apple Watch suffers from as well. For anyone with a two-year old iPhone, which includes the vast majority of iPhone users who will upgrade in the next year, this will be a significant upgrade. For all the concerns about a down year for iPhones, I believe Apple will have another year of year on year growth, though likely significantly slower year on year than in the iPhone 6 cycle.

I’ve been saying since early last year that Apple should launch its own device installment plan for iPhones, and now it’s launching one, with the iPhone Upgrade Program. This is a huge opportunity for Apple to take control of the customer relationship away from the carriers, and that in turn is a big risk factor for carriers, which will now cede some of that relationship to Apple. Arguably, only Apple has the infrastructure in place to offer this kind of plan to customers, so this will also be a further differentiator against competitors.

Apple TV

The Apple TV has been described as a hobby at Apple for too long, and today the transition to a product worthy to sit alongside Apple’s other products begins. The new SDK will create a huge new opportunity for both existing and new developers, both in gaming and content, and in the process it’ll make the device more compelling for end users too. But what will really change the Apple TV is the launch of the Apple TV service a few months from now, because only then will the Apple TV be capable of becoming the only device you need to plug into your TV. In the meantime, Apple is going to bring casual gaming and a much broader range of apps to the platform, and especially for cord cutters, the Apple TV might well become the only device they need.

One interesting wrinkle is that Apple is giving developers less than two months to create apps for the Apple TV, which is by far the shortest time it’s ever given developers for a completely new SDK. The iPad, which leveraged what had been known as iPhone OS, gave developers 66 days, while the original iPhone gave them 127 days and the Apple Watch debuted 157 days after the SDK was released. That doesn’t give developers a lot of time, but it likely reflects the shared elements in tvOS compared with iOS on iPhones and iPads.

Apple Watch

Though a minor announcement at the event this week, Apple Watch OS 2 is going to be enormously important for the Apple Watch and for Apple. An Apple Watch running OS 2 is best thought of as the version of the Watch Apple would have wanted to launch right off the bat, if it could have. The first version of the Watch software was good, but the reality is that the apps are sorely lacking, in large part because of the heavy dependence on the iPhone for functionality. With Watch OS 2, that all changes, and apps should be snappier, more functional, and far more varied in their capabilities. I believe this new phase of its history will change the Watch as much as iPhone OS 2 changed the iPhone, and make it a much more compelling device, while creating big new opportunities for developers. The new watch and band options should also help diversify the appeal of the Apple Watch in both the premium and low-end segments, with both the Hermes watches and the new colors for the Sport option. This, coupled with the holiday season, should make for a really big calendar Q4 for Watch sales.


The iPad Pro has obvious similarities to Microsoft’s Surface, with its detachable keyboard and stylus. But the big difference is that the iPad is designed first and foremost as a standalone tablet, and the keyboard and stylus are optional extras. The Surface has always felt compromised as a pure tablet, because everything is geared around the use as a quasi-laptop. The Smart Keyboard and Pencil will add a lot of value for certain kinds of users, but the iPad Pro could easily be a replacement for a family PC for gaming or TV viewing. But with the keyboard, multi-tasking, and new apps and functionality from Microsoft and Adobe among others, it could also become a fairly compelling option in the enterprise. At a minimum of $1000 including the Keyboard and Pencil, the iPad won’t be all that price competitive against a basic PC, but with the new internals, it’s actually quite a powerful computer in its own right.

The key for the iPad is that Apple is now engaged in what you might call salami tactics here; in other words, Apple is seeking to add to the iPad opportunity incrementally with a number of smaller moves, and I see the iPad Pro in this context, along with Apple’s partnerships with IBM and Cisco. The iPad Pro by itself won’t dramatically change iPad sales, but should provide a good boost for sales, especially in conjunction with the advancements in multitasking and split-screen functionality in iOS 9. I’m still skeptical that iPad sales will start growing again over the longer term, but I think they might stabilize, and that will happen in large part due to increasing education and enterprise sales rather than renewed growth in the consumer market.

Apple September 2015 event preview

Related topic pages: Apple, and more narrowly the Apple and TV topic page.

I’m writing up a short Apple event preview here. Please note that this isn’t a list of predictions – that’s always seemed foolish to me so close in to an event, since so much is known already, and any real out-on-a-limb projections are easily proven wrong the following day. Rather, this is an analysis of the importance and impact of the things that are likely to be announced. I’ll follow up with a comment for press in the hour or so after the event – if you’re not yet on my media distribution list but would like to be, you can sign up here.

We also did something of a preview of the event on the Beyond Devices Podcast this past week, focusing especially on the Apple TV – I’m embedding the SoundCloud player below, and you can also find the episode on iTunes and Overcast, as usual.

New iPhones

One of the key mistakes a lot of people in the press and other commentators are making with regard to the new iPhones is having a single-year upgrade mentality. And because they make this mistake, many people are predicting a first down year for iPhone sales, but this view is misguided. As long as you look at each new iPhone in comparison solely to the iPhone that came the year before, you’re going to totally miss the point, which is that the vast majority of iPhone buyers are on a two-year upgrade cycle, and therefore the important comparison this year is to the 5S (and 5C) and not to the iPhone 6 and 6 Plus. I put together the table below a while back for a client, and I think it’s very relevant here – the key thing to look at is the final column, because this is the set of new features an owner of a two-year-old device will see when purchasing the new device. As you can see, even if you ignore Force Touch, which is highly likely but as yet unannounced, there’s plenty to recommend the new devices over the 5S, and if you bought a 5C two years ago, you need to add in several more features that weren’t in that device but were in the 5S, notably Touch ID.

iPhone 2 year upgrade cycles

Beyond the two-year upgrade cycle, everything else points to another big year for iPhone sales:

  • Switching from Android should continue at the same pace, especially since all the year’s major new Android devices are now out, so there’s no sense holding off on buying a new phone.
  • Upgrades from iPhones should be big again – the 5S cycle was bigger than the 5 cycle, which drove last year’s upgrades, so the starting point is much larger, and Tim Cook has made much on earnings calls of how little of Apple’s iPhone base has upgraded to the new phones yet.
  • The iPhone 6 Plus from last year will likely drop in price by $100, meaning that you can now get an extremely capable phablet for the same price as this year’s brand new phone (and the same price the Samsung Galaxy S6 and other leading Android devices launched at).
  • Installment plans and especially leasing options (many of which are iPhone-centric) from the US carriers are driving more frequent upgrades and purchases of higher-priced devices, which should further help iPhone sales. Sprint and T-Mobile in particular are driving iPhone sales hard at the moment, and I’d expect to see some bigger promotions from Verizon and AT&T around the new iPhone launch too.

Will the year-on-year growth rate be as high as this past year? No. But will it veer into negative territory? Absolutely not. Apple should sell more iPhones this year than they did last year, as they have every year in the past. Even those users that sometimes or always upgrade every year should see plenty to like in the new phones too, with Force Touch and other new features making the new phones a nice step up over last year’s ones.

Apple TV

I’ve written a lot about the Apple TV and Apple’s TV strategy in general over the past two years, so much so that last week I put together a new topic page on this site to summarize it all. That writing kicked off with a piece from January last year on how Apple could turn the Apple TV into more than a hobby, and I stand by what I said then, which is that the real transformation can’t happen until Apple launches a TV service (note that this was well before reports that Apple was working on such a thing surfaced). I still believe that’s the case, but I also believe that the announcements that will be made tomorrow will be extremely important for the Apple TV. Adding an open SDK and App Store will create significant new opportunities for third parties and for Apple around both gaming and content, something I wrote about on Techpinions last week. The potential for gaming in particular depends a great deal on the details of execution, most importantly the ease of porting apps from other flavors of iOS, and the controllers. But I think the new Apple TV will be huge. The biggest questions in my mind are how soon it will launch and therefore how much time developers will have to begin creating apps for it. Since it’s very likely to launch before Christmas (and probably in November), it’s likely to have the shortest announce-to-launch cycle of any entirely new Apple SDK, and that’s going to make this launch very interesting to watch.

Apple Watch

Though a minor announcement at the even this week, Apple Watch OS 2 is going to be enormously important for the Apple Watch and for Apple. I think an Apple Watch running OS 2 is best thought of as the version of the Watch Apple would have wanted to launch right off the bat, if it could have. The first version of the Watch software was good, but the reality is that the apps are sorely lacking, in large part because of the heavy dependence on the iPhone for functionality. With Watch OS 2, that all changes, and apps should be snappier, more functional, and far more varied in their capabilities. I believe this new phase of its history will change the Watch as much as iPhone OS 2 changed the iPhone, and make it a much more compelling device, while creating big new opportunities for developers. This, coupled with the holiday season, should make for a really big calendar Q4 for Watch sales. I’ve written about all this in more detail here.


It’s still unclear whether we’ll see new iPads at this September event, or whether they’ll be announced in October, but either way what I say here holds. The key for the iPad is that Apple is now engaged in what you might call salami tactics here (that’s a term that was coined back in the 1940s but which I first came across in this scene from the British comedy Yes, Prime Minister). That is, there are no huge boosts for iPad sales available to Apple, but rather a series of small steps it can take one by one, each of which will help iPad sales incrementally with the IBM and Cisco deals good additional examples. I first wrote about this idea here. I definitely see the iPad Pro (or whatever the larger iPad ends up being called) in this context – it won’t dramatically change iPad sales, but should add a little to the effort, especially in conjunction with the advancements in multitasking and split-screen functionality in iOS 9 (and potentially iOS 9.1), and the possibility of a stylus and Force Touch. I wrote a piece a while back about how iPad sales might eventually tick upwards due to upgrade cycles, but we’re coming to the end of the period when I thought that might happen, and I’m now skeptical that it will. Rather, I think they might stabilize, and that will happen in large part due to increasing education and enterprise sales rather than renewed growth in the consumer market.


Apple’s September event always sets the tone for its entire year – new iPhones are announced, and the iPhone makes up the majority of Apple’s revenue and profits, and the performance of the iPhone business largely determines overall growth rates, at least for now. So the new iPhones themselves are enormously important. But I’m actually far more interested in and excited by the Apple TV and Apple Watch OS 2, because they relate to unknowns in Apple’s business. iPhone upgrade and sales patterns are fairly predictable, but the Apple Watch is so early in its life, and the Apple TV is about to embark on such a significant transformation, that these moves are arguably more important in terms of their potential to move the needle on Apple’s future growth in unpredictable ways. On a personal level, too, I’m looking forward to a new iPhone, but I’m more excited by a new Apple TV, and by the new things my Apple Watch will do when running OS 2 and the new apps developers will create.

Thoughts on Apple’s Q4 2014 earnings

Notes: this is part of a series on major tech companies’ Q4 2014 earnings. All past earnings posts can be seen here, and all earnings posts for Q4 2014 can be seen here. For the sake of easy comparisons and transparency, I always use calendar quarters in my analysis. Hence, Q4 2014 in this and every post on this blog means the quarter ending December 2014, even though some companies (Apple included) have fiscal years that end at other times of the year. 

A blowout quarter

The hardest posts to write are often the ones where it’s utterly uncontroversial that the results were astonishingly good, and that was definitely the case with Apple’s record-breaking earnings today. So instead of hashing over the same stuff as everyone else is, I’m going to try to pull out a few possibly overlooked data points. Apple changed its reporting structure in a couple of ways this past quarter, and that gave us one or two new insights while also sadly burying some data points and obscuring others. I’m going to be working through the revised numbers over the next 24 hours or so, and will be issuing my quarterly deck for subscribers once the 10-Q report is out, as that’ll fill in some gaps in the current data. I may well do another post on the earnings at that point too.


I tweeted about the iPhone ASPs as follows shortly after the numbers came out:

In some ways, that about sums it up. But of course that chart shows two sets of ASPs, going in dramatically different directions (as I indicated they would in my Techpinions earnings preview post on Monday):

  • iPhone ASPs rose in Q3, but even more dramatically in Q4, largely thanks to two things: the iPhone 6 Plus, which raised the base price of the top-end iPhone model by $100, and the introduction of a 128GB model, which raised the top-end price as well. The combination of these two conspired to lift ASPs $50 above last year’s number.
  • iPad ASPs continue to fall, on a fairly predictable slope, over the last few quarters, enabled conversely by a lowering of the entry price for iPads.

The two charts below show the pricing moves behind those ASP trends:

iPad retail prices iPhone retail pricesAs you can see, the lowest price for iPhones has remained very stable for four years, while the highest possible price has risen $200 since 2010. But the iPad’s lowest selling price has fallen from $500 to $250 during that same period, while the highest price has barely changed. Given the lack of subsidies on the iPad, lower full retail prices translate directly to what consumers actually pay, whereas higher prices on the iPhone side are masked by carrier subsidies and/or installment plans in many cases. All this helps to explain why the iPhone ASP keeps rising while the iPad ASP keeps falling.

Retail’s varying importance in different geographies

Apple giveth and Apple taketh away when it comes to financial reporting. This quarter, Apple took away all visibility over the current quarter’s retail finances, as it rolled retail reporting into regional reporting. However, in so doing, it provided a wonderful insight into past retail performance on a region-by-region basis, something we’ve never had before. I’m curious to see whether it provides any retail-related financials in its 10-Q, but for now we’ll have to make do with this interesting data set. I’ve taken that historical data and generated the following chart, which shows retail revenues as a percentage of total revenues on a regional basis:

Retail as percent of revenuesThere’s obviously a huge variability by region, and this reflects a factor I’ve documented in the past. Here’s the old-style revenue split by region vs. the number of retail stores by region, which highlights the regions which have fewer retail stores than their revenue contribution would suggest:

Retail stores vs revenueAs you can see, the regions with the smallest percentage of revenue from retail are the same as those with the smallest number of retail stores relative to their overall revenue contribution, so this isn’t a big surprise. Japan comes bottom on both metrics. The next question is which of these two factors is the cause and which is the effect, given that there’s clearly a correlation. I suspect there’s some of each, but it’s also clear why Apple is investing so heavily in retail stores in China. It’s also clear why Apple is adding so many more retail stores outside the US than inside it (though that trend reversed a little in the last two quarters).

Growth remarkably diversified by region

One last data point: Apple’s growth this past quarter was amazingly widespread by region. Over the last five quarters Apple’s gone from pretty low overall growth back to roaring growth on a year over year basis. In some of those past quarters, one or two regions carried much of the overall growth, whether Japan for a couple of quarters last year, or China during almost all quarters. But this quarter was notable for just how broad-based that growth was by region, with every region but Japan making a pretty meaningful contribution to overall growth (and Japan suffering from tough comparisons with a very strong quarter a year ago rather than any poor underlying performance):

Year on year rev growth by regionApple provided some numbers around this on the earnings call, citing 22% revenue growth in developed countries, 58% revenue growth in emerging markets as a whole, but 70% revenue growth in China year on year. Unit shipments grew by an astonishing amount in the BRIC countries as a while too – I’m not 100% sure of the number but I believe it was 90%.

Divergent fortunes for Apple and other major phone makers

As I said, I hope to have more top-line analysis later on, but for now I’ll end with this thought: the contrast between Apple’s and most other phone makers’ numbers couldn’t be starker, perhaps most dramatically as it relates to Samsung: record-high shipments at record-high prices, generating record-high profits, just as other vendors are seeing ASPs plunge, shipments stall and and margins squeezed. There’s been so much skepticism for so many years about Apple’s ability to continue to make its unique business model work over the long term, and Apple continues to prove them wrong. I believe with the launch of the Apple Watch in April, HomeKit devices finally starting to ship in significant numbers in the coming months, CarPlay, Apple Pay and who knows what else that might arrive in 2015, Apple is simply reinforcing what’s becoming an incredibly strong, sticky, and growing ecosystem.

Thoughts on Apple Q3 2014 earnings

Note for new readers: I stick to calendar quarters in analyzing earnings, because it makes cross-company comparisons easier. As such, all references to “Q3 2014” refer to the quarter ending September 2014, not Apple’s fiscal Q3 2014. Once again, this post is part of a series on major tech companies’ earnings (this is the second for the current round of earnings; analysis of Q1 2014 earnings can be found here, and for Q2 2014 can be found here). 

iPad plus Mac is the number to watch

Lots of attention was paid by both Apple and commentators this quarter to both the iPad and Mac numbers, but the key is increasingly to look at the combined results of these two segments, both in unit shipment and revenue terms. For a while there, as the Mac started to shrink, iPad growth offset that decline, but the two have now switched places. Nonetheless, year on year, the two combined continue to operate within a very narrow range:

Mac plus iPad revenues Mac plus iPad shipments

ASPs continue to tell an interesting story

Given the near demise of the iPod, and the declining average selling price (ASP) of the iPad, the iPhone and Mac are actually the best two products for Apple to be selling. Interestingly, they’re also the two products which are most likely to experience substitutional effects with the iPad. Note the ASP trends in the chart below, which shows trailing 4-quarter ASPs to smooth the quarter-to-quarter fluctuations:

Apple ASPs

The iPhone ASP continues to hold up remarkably well, staying within $10 of $600 for the last five quarters, though rather lower than the $640 or so it regularly hit earlier. With the launch of the iPhone 6 Plus it’s likely that ASPs will trend somewhat higher over the next couple of quarters, and this quarter’s ASP was $42 higher than last quarter’s, partly for that reason.

Who’s buying iPads?

I’ve done some analysis previously on iPad replacement cycles and theorized that we’re due for faster sales over the next few quarters as the many iPads sold 2-4 years ago become due for upgrades. I thought I’d revisit some of those numbers in the context of what we heard today to answer the question of who’s buying iPads. Tim Cook has now given several data points as to the percentage of iPad buyers who were first time buyers, and it’s interesting to look at what that data signifies. Using that data, I’ve put together estimates of the breakdown between new buyers and upgrade buyers of iPads, as shown below:

iPad Buyers By Source

If these numbers are correct, they appear to show two trends:

  • The number of people buying upgrades to existing iPads is rising slowly in a cyclical pattern, as would be expected with a growing installed base (I’ll come back to this below)
  • The number of people buying new iPads has been extremely cyclical too, but appears to have slowed somewhat over recent quarters. Though the Q4 peak last year was higher than the one the year before, every quarter since has been off the year-earlier quarter by some margin. Though Tim Cook rightly points out that the market isn’t saturated, the number of new buyers does seem to be falling somewhat.

Let’s look at that upgrade number in the context of the installed base (the caveat here is that we’re working with two sets of estimated data now). My guess is that the percentage of the existing iPad base that upgrades in any given quarter is around 3%, with a higher number in Q4, both because it’s a big buying quarter anyway and because as a result it’s the anniversary of many earlier purchases. I think the rate in those quarters likely spikes to around 4.5%. On that basis, as the base continues to grow by a few million every quarter, if the upgrade rate holds steady, the number of iPads sold to existing owners will continue to grow steadily too. The big question then becomes whether Apple can turn around the new buyers number with the new iPads it launched last week, and the lower prices on older iPads. I suspect it will and we’ll see a really big fourth quarter, perhaps the first in a year that’s higher than the year-ago quarter.

Apple Watch buried among Other Products

One of the more interesting tidbits on the earnings call was not a financial data point in its own right, but an indicator of future reporting changes. Namely, that the Apple Watch will be reported under Other Products along with both the existing Accessories business (including Beats) and the iPod business, which was formerly reported separately but is becoming so small as to be no longer worthwhile reporting in its own right. It’s worth looking at the history of other Apple products here for a precedent:

  • The iPod launched in October 2001, and in the next earnings release Apple reported the number of shipments, but didn’t break the product out in its Data Summary with its Mac shipment and revenue data until two years after launch, in October 2003. The company continued to provide occasional iPod shipment numbers in the interim, however.
  • The iPhone and iPad both received immediate status as segments in their own right immediately after launch, with a full revenue and shipment breakdown (though in both cases muddied by the fact that other related revenue was lumped in with device sales revenue for a time).

What does it signify that Apple won’t report Apple Watch shipments and revenue in full detail from the outset? I think two things:

  • Apple is exhibiting caution ahead of what is in some ways its most unpredictable new product category in many years, since the iPod. Apple as a company has many times more customers today than it did then, but the Apple Watch is as big a departure from its current product line as the iPod was in its time, and it’s inherently difficult to predict how many it will sell. As such, the lack of reporting in the short term may reflect an abundance of caution about breaking out a nascent category.
  • Apple’s leadership alluded to this on the earnings call, but the Apple Watch will also have a far more diverse set of price points than any of its other products, ranging from $349 to several thousand dollars, and as such the average selling price will be a huge clue as to which models are selling in a way that it has never been for the iPhone, iPad or even the Mac. As such, Apple is keeping this commercially sensitive data out of competitors’ hands, at least for the time being.

However, all that said, within two years of the launch of the iPod Apple was providing a detailed breakout of both shipments and revenues, and I’d very much expect that if the Apple Watch sells at all well we’ll get (a) ad-hoc reporting of key metrics such as shipments right from the start as with the iPod and (b) a full breakout at such a time as the Apple Watch becomes significant enough as a revenue generator to warrant its own segment. With an ASP that’s likely to be in the same ballpark as the iPad or higher, it will only have to sell a few million to become material to Apple’s earnings overall, and I would expect that to happen within the first few quarters. It will be hard for Apple to keep these numbers buried out of sight for very long.

I’ll likely do another post or two this week as I continue digging through the numbers, so that’s it for now.


Further thoughts on iPad sales

On the morning of Apple’s latest iPad event, I wanted to quickly revisit the topic of iPad sales and share an idea that’s come up again and again as I’ve discussed the topic with other analysts and with reporters in the runup to today’s event. I’ve posted the video below to YouTube as a way of illustrating this idea visually, and the text below is largely the transcript of the video, with some of the same images used to illustrate key points. I’d love your feedback on the video format and on the blog post, as always. Feel free to connect with me on Twitter at @jandawson or to email me at

(you may want to watch the video on to see it bigger, and whether you watch it here or there I suggest switching to the highest available resolution.)

I’ve done two blog posts recently which made use of some version of this diagram:

Apple product evolution

The first looked at the Apple Watch as the latest in a long line of increasingly mobile and personal computers Apple has released since the first Apple computers. The second examined the question of how many computers we actually need, and the tension that exists when we end up purchasing several of them to accomplish the same set of tasks in slightly different ways.

I wanted to return to this diagram to illustrate an idea that’s been percolating in my mind since I first drew this diagram, and that’s the iPad’s place in this evolution.

One way to see this diagram is as the technological equivalent of this hackneyed picture of human evolution:


But of course there’s a problem with that. If you play back the Apple version of this evolution there’s a historical quirk – the iPad didn’t arrive at its logical place in the evolutionary chain: it was late:

iPad late

Though Apple started work on the iPad before the iPhone, it came to shelve that project and focus on the iPhone instead, only returning to the iPad later. As such, in a historical quirk that would have been impossible in a true evolutionary progression, the iPhone’s logical progenitor ended up coming later in the evolutionary chain. Steve Jobs explicitly recognized this relationship in introducing the iPad by placing it between the MacBook and the iPhone in Apple’s product lineup.

The problem with that approach is that it’s created a strange set of expectations for what the iPad should do, both as a device to be used and as a member of Apple’s product portfolio. Had it launched first, with the iPhone launching later, it would have been natural to assume that the iPhone would eventually cannibalize it much as it did the iPod. But because the iPad launched after the iPhone, it created this unnatural expectation that it would complement the iPhone and perhaps even exceed its success.

Only when you see the iPad in its natural place in the evolution of Apple products – despite the actual timing – does it start to become clear where the iPad sits and what its future might hold. The iPhone – and not the iPad – is the culmination of this evolution, with the Apple Watch the next evolutionary step (with the potential eventually to become the pinnacle of this evolutionary process, in time replacing the iPhone).

What does this mean in terms of iPad sales? Well, there are two big questions we don’t know the answer to with iPad sales. The first has been well discussed, and was the topic of one of my earlier blog posts, and that’s replacement cycles. With a product that’s just four years old, and which didn’t start to sell in really large numbers until 2011, it’s very hard to calculate what those might be. But it’s easy to imagine that they’re longer than iPhone replacement cycles, perhaps as long as three or four years. As such, I’ve argued that we might see a major upgrade cycle over the next couple of years as that first big wave of iPad purchases in 2011 ages to the point where it needs to be replaced.

The other big question, though, which hasn’t been discussed nearly as much, is the degree to which some iPads won’t be replaced at all, because their owners stop using them entirely. Because of the historical evolution we’ve discussed, and especially because of the launch of larger and larger smartphones, now including the iPhone 6 Plus from Apple itself, there will be many people who no longer feel the need for an iPad at all, especially the only slightly larger iPad Mini. So the real question splits into three parts: firstly, how many of the iPads Apple has sold are still in use? Secondly, what percentage of those will be upgraded or replaced at all? And thirdly, how quickly will those upgrades happen following the initial purchase?

All of which brings us to Apple’s event today, at which it will launch refreshed iPads. Apple’s job with regard to the iPad during this event is threefold: give the many existing owners a reason to upgrade, give people who haven’t yet tried iPad a reason to buy their first, and give people who may have abandoned an earlier version of the iPad a reason to give it another try. The first of these is in some ways the easiest – the new features (Touch ID, possibly a higher resolution screen) and the requisite spec bumps will increase the gap in performance between the iPads 2 and 3 many people own and the latest device even further, making an upgrade more compelling. And Apple has actually been doing a good job bringing more and more converts to the iPad too, with around 50-70% of buyers being either new to iPads or to tablets as a whole in the last few quarters. It’s the third task that’s the toughest, and I wonder to what extent Apple should even be trying to convince former iPad users to come back. If an iPhone 6 Plus is the right device, and obviates the need for an iPad, should Apple merely embrace the survival of the fittest device here?

This, in my mind, is the most interesting aspect of today’s event, because it will show us how Apple views the iPad in a product portfolio that now includes the forthcoming Apple Watch as well as the much larger iPhones. Again, had the iPad launched before the iPhone as befits its place in the evolutionary chain, we wouldn’t be marveling at the stagnant and even falling sales over the last year or so. It’s only because of the quirk of timing of the original iPhone and iPad launches that we’re even wondering about this at all. I’m looking forward to seeing whether Apple sees it that way too.

Why iPad shipments aren’t growing, but might start again soon

As with last quarter’s Apple earnings call, there has been lots of handwringing about why iPad shipments aren’t growing this quarter.  I’ve done a fair amount of thinking about this, and did some analysis as part of the recent Apple profile my clients received. I thought I’d share some of that thinking here, and expand on it a bit. A fuller review of Apple’s earnings will be coming shortly.

Update: In-depth review of Apple’s earnings is up here now.

Shipments versus the base

First, it’s important to be clear about one very important thing: the difference between iPad shipments and the iPad base. Stagnant or even shrinking shipments don’t mean the base is shrinking, and in fact it’s likely growing at a decent rate. Here’s my estimate of the iPad installed base over time:iPad installed base over timeYou’ll see that it’s been growing at a fairly steady clip, and that it’s reached about 180 million. Naturally, I’ve made some assumptions about how long people hang on to their iPads based on various data sources, so it’s not 100% accurate, but it’s likely a good guess at what’s been happening. So the first thing to note is that the number of people who have iPads is growing, not flat or shrinking, even if shipments are stagnant or falling slightly. Continue reading