iPad demand said to be fading as competition heats up

[Corey]

Demand for Apple’s iPad tablet is said to be in decline as competition finally heats up thanks to the $199 Kindle Fire from Amazon, and investors could be in for a disappointing fourth quarter as a result. In a recent research note, Goldman Sachs analyst Bill Shope suggested Apple’s firm grip on the global tablet market may finally loosen unless the Cupertino, California-based company lowers its pricing. Read on for more.

“New Hon Hai forecast implies more limited upside to iPad units, which is disappointing for a December quarter,” Shope wrote. “While improving holiday demand into late November could certainly push the momentum in the other direction, we believe it is prudent to assume the iPad is facing some near-term demand challenges.”

The analyst sees three main factors correcting the waning demand: continued adoption of iCloud; the launch of Siri on the iPad, which Shope apparently sees as imminent; and lower price points. Shope also says that iPad sales over the tablet’s first six quarters have been remarkable, far exceeding initial adoption of the iPod and iPhone.

This rapid adoption with few catalysts driving sales may be saturating the market, Shope suggests. “Price cuts have also been critical, and the iPad is overdue. While the rapid ramp of the iPad installed base is remarkable by any metric, it is even more remarkable when we consider the fact that it has occurred without any change in pricing or storage capacity.”

“Indeed, the iPhone enjoyed several major retail price cuts in its first year,” the analyst continued. “The 8Gb version of the first iPhone saw its retail price slashed from $599 to $399 in its first three months on the market. Apple further improved affordability with the shift to a subsidized pricing model in 2008, bringing the price for an 8Gb iPhone down to $199 (with a two-year contract). Similar price cuts occurred with the iPod throughout its existence, and both the iPhone and the iPod saw storage capacity increases with each product refresh. In contrast, the launch of the iPad 2 saw no increase in storage capacity across the SKUs and no price change.”

Apple is rumored to be working on a new iPad model scheduled to be released early next year. Some believe the tablet will be very similar to the current iPad 2 but with a lower price point in the high-$200 range, while more recent reports suggest Apple is working on a smaller iPad model with a display measuring just over 7 inches diagonally. The company is then rumored to be planning the launch of a full-sized “iPad 3″ with a Retina Display later next year.

 

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