Apple iPad Market Update

The Apple iPad has hit the market, at least in the US. It has been shipping well, though not as high as some had predicted. Incidentally, Semico has a conservative and slow roll out scenario for the iPad with sales picking up at the end of 2010 and early 2011.

Apple delivered the first iPads starting Saturday April 3, 2010. At the end of the first weekend about 300,000 units had shipped. Sounds impressive, but around 90% of these were pre-ordered in the weeks leading up to this launch. The huge lines at Apple stores and Best Buy did not materialize. Some estimates had foreseen over 700,000. By the end of the week around 450,000 had shipped. Apparently the early adopters came out in force for Apple. Will they keep the ball rolling? This is not to denigrate the iPad’s early shipments. Rather it shows how hype can drive some rather unrealistic expectations.

It has been observed that iPad’s early success matches iPhone’s initial sales. Some history; the iPhone was introduced in 2007 and sold 1.4 million in the first 6 months. It reached 6.1 million by the end of its first year. The iPod was introduced in 2001 and sold 372,000 in the first year. After opening the iTunes store, the iPod shipped over 1 million in its second year. Both products were introduced into existing markets. Apple was offering innovation to product categories that consumers were already familiar with and was able to take market share.

On Apple's site the UK, France and Germany launch is slated for late April. It has been reported that Apple Germany ordered 75,000 units but has received orders for 250,000 units. Yes, this is great for Apple having higher than expected demand in Germany, but is Apple prepared for this? If the company’s manufacturing projections are too low, then it has to rev up production which takes time.

The question of Flash is one of the assumptions Semico’s forecast is based on. We know that Apple has contracts for Flash, but we also know that there is limited capacity in the semiconductor industry because investments were not made in 2009 for Flash manufacturing. Apple has several products that use Flash, not just the iPad. We may not see Flash prices decline until late 2010 or early 2011. At that time Semico would expect to see significant price declines in iPad that could spur sales.

The iPad is the product that many are looking at to establish the tablet PC which is essentially non-existent. It takes time to build up a market beyond the early adopters. Based on the early success of the iPad and the news of “iPad killers” coming soon from competitors, Semico is looking at bumping up its tablet PC forecast.

If the iPad sells several hundred thousand in 2Q '10 and maybe a little more in 3Q '10 and then much more for the holiday season 4Q '10 you get to a market TAM of about 2.5 to 3.0 million. If Apple takes the lion's share 2.0 million is a conservative number for iPad. It could take more market share. With falling prices and more apps, after Xmas sales in 1Q '11 along with sales in Japan (Golden Week) and China (Chinese New Years) there is likely a high ramp up. Therefore, iPad could hit 4 million or more by the end of 1Q' 11 - the one year anniversary of its introduction.

The iPad will compete with a lower cost option from Apple the iPod touch. It also competes with netbooks. Other tablet PCs will hit the market in 2010. The WePad was announced recently in Germany. This is based on an Intel CPU, presumably Atom. The Hewlett-Packard Slate that is expected to launch in late 2010 has gained more media attention. There will be consumers who have to decide if they want a "fun" product or justify the cost with productivity functions. No one has shown how well iPad will do with Mobile Office or Apple's version iWorks.

One thing can be said is that Apple has lit a fire. Internet access, social networking and e-books have given tablet PC a new purpose. The era of the tablet PC has finally arrived.

Tony Massimini

Chief of Technology