- I anticipate enterprise adoption of Macs and iPads to be strong due to platform support from Microsoft, IBM, and Cisco.
- Each of these events build on top of each other, as productivity enabling applications and services will support enterprise adoption of Mac OS and iOS.
- An aging installed base of PCs puts the iPad Pro and Mac in a great position to grow in FY 2016.
- I expect first-year shipments of the iPad Pro to be approximately 58 million units based on my demand model.
- Furthermore, expectations for the iPad Pro are high, as 2-in-1 devices are expected to be the next "big" PC category
Apple (NASDAQ:AAPL) really started to pick up momentum when Microsoft (NASDAQ:MSFT) decided to offer the office suite to Mac OS X and iOS. The partnership with IBM (NYSE:IBM) came as a result of Microsoft's willingness to offer apps for Apple branded products. Once Microsoft was onboard, everyone else went onboard the Apple train, and it’s no wonder. If Microsoft hadn’t approached Apple first, it was likely that competing apps in Apple’s ecosystem would eventually neutralize Microsoft’s software business model.
No point in leaving low hanging fruit on the tree. Right?
IBM then went on to form a more formal alliance with Apple back in the winter of 2014. Of course, it did little to reverse the trend in iPad sales, but the development of IBM-branded software for both Mac and iOS at least contributed to the growth rate of the Mac segment throughout 2015.
Note: You might also be interested in Amigobulls' Apple stock analysis video evaluating its fundamentals.
It is not surprising that enterprises are starting to shift more of their PCs to Macs over Windows. While Windows 10 could mitigate some of these trends, I anticipate that the release of OS X El Capitan will sustain the momentum Apple has been able to establish over the past eight years.
Furthermore, as of September 1, 2015 Apple agreed to a partnership with Cisco to jointly develop technologies that allow for better connectivity for Apple branded products. Cisco (NASDAQ:CSCO) plans on developing a faster lane for Apple specific devices so the local area network can prioritize resources for higher priority tasks. This makes Apple a friendlier product to the enterprise even as it already has the best security features, and a pre-existing app ecosystem that accommodates for general purpose, and productivity applications.
I anticipate that the iPad Pro will debut into an environment where consumers will be extremely receptive to both the larger form factor, and feature additions that are brought on by iOS 9. Of course, there is a lot at stake given the revenue deceleration in the segment between fiscal year 2014 and 2015.
While it is hard to characterize the size of the enterprise market the conditions are ripe for adoption potential. A recent survey showed that 91% of businesses support iPhones, 89% support iPads, and 60% support Macs. The report also points to continued adoption of Mac PCs, which comprises a very small fragment of the entire PC market. It’s projected that 281.6 million PC units will be sold, and of that amount the Mac will account for 21 million units, assuming a 12% growth rate. To be fair, growth might be slightly less than that, but it’s hard to tell, because Apple tends to hold its data very close to its chest, and industry reports tend to be wildly inaccurate when pertaining to Apple-specific PC sales versus broader sales due to the limited amount of volume that goes through third-party sales channels.
Nonetheless, Apple's base of units is so small when compared to the broader PC market that a minor shift in market share could add meaningfully to sales in any given year. The installed base of PCs older than five years is estimated at 500 million units, according to Intel. Older PCs will be replaced over time, which will eventually impact Mac and iPad shipments. Many of these five-year old PCs belong to small and medium businesses, which is why enterprise trends are extremely important to Apple’s growth trajectory going forward.
Preferences towards devices have shifted over the past five-years. It’s likely that users will take the positive experience they had with iPhone, and will assume that the Mac will deliver that same experience. With an aging installed base of PCs, there’s a lot of pent-up demand for Mac products, but it’s not exactly clear how it will impact Apple’s business in the next fiscal year. Furthermore, there are some challenges to near-term growth assumptions due to the high price elasticity of computers. Mac prices are on average three times more expensive than Windows PCs. Therefore, Apple really needs to launch the iPad Pro and price the device in the $700 to $900 range to generate meaningful growth in revenue when pertaining to the enterprise.
The sub $1,000 PC market is where Apple can truly shine. With a 2-in-1 product that’s roughly the size of an Ultra Book, Apple can gain more tablet and PC market share. This will correspondingly drive demand in terms of units. When based purely on pricing elasticity, I anticipate that the demand for the Apple iPad Pro will be around 58.81 million units in its first year. This will likely displace the unit mix for the mid-tier iPad Air 3, and the low-tier Apple iPad Mini 4. It’s also hard to determine how sales would compare to prior year, because Apple will also sell units of the iPad Air 3 and Apple iPad Mini 4. So, I’m not going to offer an exact revenue figure for the entire segment, but I do anticipate meaningful adoption of 2-in-1 devices upon launch.