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Why Apple is blaming iPad’s longer upgrade cycle for lower sales

Why Apple overcame currency headwinds to produce strong earnings (Part 2 of 14)

(Continued from Part 1)

iPads have a longer upgrade cycle

Earlier in the series, we discussed Apple (AAPL) spectacular earnings. We also discussed the robust forecast for the next quarter. iPhone and Mac continue to drive Apple’s growth. However, iPad’s unit sales continue to decline. As the chart below shows, iPad sales declined at a year-over-year (or YoY) rate of 9% and 13% in the last two quarters. In 4Q14, Apple sold 12.3 million iPad units—compared to 14.1 million in the same quarter last year.

During the conference call to announce its earnings, Apple’s management mentioned that 50%–70% of the buyers are first time buyers. This indicates that people’s love for iPads hasn’t decreased. The main reason for the decline in sales is that people hold on to iPads longer than phones. Management added, “Because we’ve only been in this business four years, we don’t really know what the upgrade cycle will be for people.”

iPad losing share to Android-based tablets

Despite all the reasons cited above, iPad is losing share in the tablet market. According to a report from the International Data Corporation (or IDC), Apple’s share declined from 33% in 2Q13 to 27% in 2Q14.

Samsung (SSNLF) saw a smaller decline. Lenovo (LNVGY) and ASUS gained market share. The major market share gain came from the “Others” category. These are the smaller Chinese players. Their tablets are based on Google’s (GOOGL) Android operating system. The “Others” category also includes the Surface Pro 3 tablet that Microsoft (MSFT) introduced earlier this year.

Continue to Part 3

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