As tablet growth slows, Apple may face a year-long iPad sales contraction

Does CEO Tim Cook's assertion that 'significant innovation' is in the cards herald a 12.9-in. iPad?

Apple's iPad will be hit hard this year as global tablet shipments and sales growth slow dramatically, especially in the markets where the Cupertino, Calif. company has historically been strongest: North American and Europe, analysts said last week.

According to researcher IDC, global tablet shipments will grow just 6.5% compared to 2013, a major revision of earlier forecasts that as recently as five months ago predicted tablets would post year-over-year gains in 2014 of 19.4%, or triple the new number.

And virtually all the growth that will occur this year will take place in emerging markets, which will see a 12% year-over-year increase in shipments. In North America and Western Europe -- still strongholds of Apple even as sales in China climb -- the tablet growth rate will be zero.

"Mature markets like North America and Western Europe will combine for flat unit growth in 2014," Jean Philippe Bouchard, IDC's research director for tablets, said in a statement Friday.

Apple's iPad has already experienced a two-quarter downturn in sales -- and contraction in three of the last five -- with unit numbers down 16% in the March quarter and 9% in the June period. That trend will continue through the end of the year, according to financial analyst Brian White of Cantor Fitzgerald.

White has forecast iPad sales of 12.8 million in the September quarter and 23 million in the December quarter. Those predictions, if accurate, would represent a decline of 9% in the September period, and a year-over-year drop of 12% in the December quarter.

In White's model, iPad sales will have contracted four consecutive quarters, ending the year with 65.5 million, down 12% from 2013 and about the same as in 2012.

Not surprisingly, Apple remains bullish on the iPad: In a recent interview with Walt Mossberg of Re/code, CEO Tim Cook argued that iPad declines were just a temporary blip.

"I'd call what's going on recently a speed bump, and I've seen that in every category," Cook told Mossberg.

Cook's take was not new. During a July earnings call with Wall Street, he said much the same. "We still feel that category as a whole is in its early days and that there is also significant innovation that can be brought to the iPad and we plan on doing that," Cook said when asked what could revitalize growth. "I think our theory that has been there, honestly since the first time that we shipped iPad, that the tablet market would eventually surpass the PC market, that theory is still intact."

That Cook felt it necessary to restate his position and imply that the downturn would be short-lived by calling it a "speed bump" -- and that Mossberg titled his piece "In Defense of Tablets" -- speaks volumes about the issue.

It's unknown what Cook has up his "significant innovation" sleeve for the iPad that could boost sales. Analysts expect Apple to unveil new models this fall, if only because that's what the company has done the last two years. But unlike the iPhone -- which has suffered a steady stream of leaks as a preface to its Sept. 9 event -- there have been few hints about what those new tablets may be.

Nor is Apple likely to dramatically lower prices to play in the bands where tablets are selling the best: Asia. IDC forecast a 10% decline this year in ASP (average selling price) to $302 for all non-U.S. markets. By comparison, the iPad's ASP in the June quarter was $444. Nor have there been any clues that Apple will launch a tablet capable of making and taking voice calls over a cellular network, a category that IDC said accounted for 25% of all tablet sales in Asia during the second quarter and was on track for a year-over-year growth rate of 60%.

Instead, the speculation that has emerged has been about a larger-sized iPad, one with a 12.9-in. screen. Talk of such a device, of course, goes back years, but was reignited by a report last week by Bloomberg, which cited "people with knowledge of the matter" to claim that suppliers were preparing to produce a larger iPad, with manufacturing starting in 2015's first quarter.

A 12.9-in. iPad, if partnered with a keyboard, could conceivably compete with traditional notebooks for productivity chores and be attractive to businesses, the theory goes. Apple's recent partnership with IBM, years in the making, according to Cook, may have been a driver for such a tablet. But Microsoft has pursued the same line of reasoning with its Surface Pro tablet to limited success.

And a so-called "2-in-1" has been denigrated by Cook, called "a toaster and a refrigerator" at one point, "a car that flies and floats" at another. Cook hasn't mocked the form factor since 2012, however.

If Cook does have "significant innovation" for the iPad in mind, eating words may be a small price to pay.

iPad sales growth chart Data: Apple, Cantor Fitzgerald

According to forecasts by Brian White of Cantor Fitzgerald, Apple's looking at a year-long contraction of iPad sales in 2014.

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