iPad King of the Hill but Average Prices Will Decline

With staggering demand for the iPad, Apple ( AAPL ) is leaving no stone unturned to ensure smooth functioning of its supply chain. It is absorbing overhead costs caused by the Japan earthquake and originally lowered its prices for the first iPad when the iPad 2 was announced. We believe these moves will help Apple fend off competition from Research in Motion's (NASDAQ:RIMM) PlayBook, and Google's (NASDAQ:GOOG) Android based tablets like Samsung's Galaxy, Motorola Mobility's (NYSE:MMI) Xoom, and Dell ( DELL ) Streak.

While these steps could impact iPad's profit margin over time, robust demand for the iPad and Apple's ability to satisfactorily meet the growing demand could comfortably compensate for the margin decline.

We estimate iPad's gross profit margin will lower gradually decrease to 23% by the end of our forecast period from the current 29%.? Trefis members, however, predict a smaller decline reaching just under 28%, implying slight upside to our price estimate. The marginal impact on Apple's stock is because iPad forms only around 7% of the stock value by our analysis currently.

We currently have a Trefis price estimate of $430 for Apple's stock , about 30% above the current market price.

Higher Sales Can Offset Margin Decline

We estimate Apple's average iPad pricing to be $585 per device in 2011 as Apple slashes prices for older versions of the iPad. Apple cut pricing of the lowest version of the iPad from $499 to $399 after it launched iPad 2 in March 2011. This means that Apple is willing to cut its prices in order to boost sales and maintain its market share against tablets like Motorola's Xoom and RIM's Playbook. This strategy is paying off as the demand for Apple's iPad is still staggering and the company expects to double its sales in the next quarter. (See iPad Continues to Dominate the Tablet Market ) We earlier discussed how Apple's step to absorb additional costs incurred from supply constraints caused by the Japan earthquake will ensure smoother iPad shipments.

According to IDC, of the 18 million tablets shipped in 2010, iPad owned about 83% of the market. With a wide variety of apps to choose from and the best-in-the-lot user interface, we expect iPad sales will cross 54 million by the end of our forecast period.

However, recurring hikes in manufacturing, distribution and labor costs could affect iPad's profitability. In a recent note, we pointed out how shortage of both labor and material at Foxconn Electronics (one of Apple's key suppliers) plant in China, could slow Apple's growth. (See Supply Chain Issues Resurface for Apple) Given the heavy backlog for the iPad, supply chain-related concerns as the above could further delay shipments in the coming quarters, causing a drag on iPad's sales and profits.

Here is our complete analysis for Apple.

Editorial Note: Our original post suggested iPad ASP are currently declining. We clarified that we expect ASP to decline over time.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

View the original article here

After iPad Sales Decline, Analysts Adjust 2011 Predictions

Now that Apple's iPad sales figures have slipped, iSuppli has adjusted its forecast for the number of iPads Apple will sell in 2011.

Apple sold 4.69 million iPads in the last quarter, the company reported in an earnings call Wednesday. That's a sharp decline from the 7.33 million iPads sold during the fourth quarter, though that included the peak holiday sales season.

Because of the decline, iSuppli has reduced its original 2011 projection from 43.7 million units to 39.7 million, according to AppleInsider. Prior to the earnings call, various iPad sales forecasts for 2011 ranged from about 45 million to 60 million.

Why have iPad sales slipped below expectations? It appears Apple hasn't been able to keep up with demand for the device. Apple chief operating officer Tim Cook said the company faces "the mother of all backlogs" with the iPad 2.

"I wish that we could have made a lot more iPad 2s, because there were a lot of people waiting for them," Cook said.

The device, which went on sale in the U.S. on March 11, has been wildly popular. Apple reportedly sold nearly a half a million iPad 2s in its first weekend in stores, at which point wait times for the device went up to five weeks. The iPad 2 also reportedly sold out just as quickly overseas.

ISuppli blamed the shortage partly on concerns about the quality of touch screen LCD panels and production shortages of the iPad 2's new speaker. It's also possible that Apple ran into a manufacturing glitch.

"When we looked at the manufacturing numbers, they must have run into some manufacturing issues, some quality issues in terms of turning those products around, because we didn't see the volume manufactured that we expected to see in the first quarter," said iSuppli director of monitor research, Rhoda Alexander.

However, Apple said supply wasn't affected by the 8.9-magnitude earthquake that hit Japan on March 11. Cook said the catastrophic event did not hurt supply or impact cost in Apple's supply chain, although it was previously rumored that Apple had committed to paying extra to ensure smooth shipping of iPad 2 components from Japanese suppliers.

However, iSuppli has increased its prediction for 2012 iPad shipments slightly, from 61.6 million units to 62.6 million.

In spite of the decline in iPad sales, Apple reported record earnings. The company reported profits of $5.99 billion, an increase of 95 percent from the same time last year.

View the original article here