IPad Sales To Decline Even As Mac Growth Will Continue

  • iPad revenue will continue to decline as it is cannibalized by larger screen smartphones on the one side and Macbooks on the other.
  • We estimate iPad segment contributing $4.5 billion to Apple revenue in Q2 2015.
  • MAC growth will continue in Q2 2015, contributing $6.1 billion to Apple’s Q2 2015 topline.

Apple (NASDAQ:AAPL) reported a very strong Q1 2015, driven to a large extent by the blowout sales of iPhones. Supporting the strong performance of the iPhone segment was the strong performance of the MAC sales. The only sore spot as mentioned in our Apple earnings review for Q1 2015 was the declining sales of the iPad. Following our recent report on the potential revenue of iPhone segment in Q2 2015, we look into the potential revenue from iPads and MAC in the next quarter.

iPad revenue decline accelerating

iPad shipments and revenue have declined for the last four quarters, and the decline has only hastened in the last two quarters.

iPad shipment and revenue growth

The pressure on iPad sales will continue as the iPad gets cannibalized by larger form factor iPhone models on one side and the MacBook Air on the other. The expected decline in iPad sales is no surprise and is reflected to an equal degree in the accelerating growth of iPhone sales and the uptick in the MAC sales. Apple Q4 2014 was the first time iPad revenues slipped lower than the MAC revenues. However, at 12% of Apple’s total revenue in the record breaking Q1 2015, iPad continues to be an important bit of the Apple puzzle.

As per a post on fool.com, Apple’s iPads segment is faced with a combination of Market saturation, larger screen smartphones and longer life cycle of the iPad, proving to be significant headwinds for the iPad. With all these trends in mind, expectations of continued in this segment is justified. We estimate the potential iPad revenue in Q2 2015 based on unit sales expectations and trends in iPad ASP.

iPad revenue potential in Q2 2015

KGI securities analyst Ming Chi Kuo expects Apple to sell 10.13 million iPads in the first quarter of calendar year 2015 (Apple Q2 2015). Ming’s unit forecasts have been among the most accurate in the recent times. We use these forecasts and iPad average selling price trends to arrive at iPad revenue potential for Q2 2015.

iPad ASP ($) iPad revenue Q2 2015 in billions of $ (@10.13 million units)
420 4.25
440 4.46
460 4.66

Based on historic trends of the iPad average selling price and the latest quarter ASP, we estimate that iPad ASP in Q2 2015 will be closer to $440. However, the release of any new models could create a meaningful deviation from our above estimate. At this ASP, iPad revenue will come in close to $4.5 billion in Q2 2015, implying an YoY decline of 40%.

MAC revenue forecast for Q2 2015

The growth in the MAC revenues has been a surprise given that not long ago, this was one segment which was considered dead as far as sales growth was concerned.

MAC shipment and revenue growth

The MAC segment registered an average unit growth of 14% in calendar year 2014. This growth is spectacular in light of the overall PC market contracting by 2.4%, per IDC estimates. MAC shipments have historically peaked in Apple Q4. The chart below shows the MAC shipments for Apple 2014 quarterly shipments as a percentage of total FY 2014 shipments.

MAC shipment share by quarter

The above trend in Mac shipments is confirmed in a blog post on FORS, predicting Apple sales for 2015. Using the results from the FORS post, MAC unit sales in 2015 are expected to come in at 4.8 million units. MAC ASP has steadily declined over the last two years, with a bulk of the shipment volumes driven by sub $1000 Macs.

We estimate MAC ASP in Apple Q2 2015 to be $1270, based on historic changes and current Mac prices. However, the release of new models could lead to deviation of ASP from our estimates. At an ASP of $1270 and 4.8 million units, Apple could generate $6.1 billion revenue from MAC sales in Q2 2015. Our estimate implies a 10% YoY growth in MAC revenues.

To sum up, iPad and MAC segments could contribute $4.5 billion and $6.1 billion to Apple revenue in Q2 2015, together making up $10.6 billion in revenue. The decline in iPad sales will continue, driven by cannibalization from larger screen smartphones and small screen Macbooks. We will be following up with another post on our detailed outlook for overall Apple revenue in Q2 2015. You can also watch our Apple stock analysis videograph, which highlights our positive outlook on the Apple stock post Apple earnings for Q2 2015. Also, Do let us know your ‘Apple stock’ thoughts in the comments section below.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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