KGI Alert: Apple Watch: iPad shipments likely to decline in 2014
KGI Greater China
14 Feb 2014
Available for Immediate Download
What’s new We forecast significant changes to the iPad line in 2014, including: (1) iPad 2 moving to EOL in 1Q14; (2) iPad 4 restarting mass production in 1Q14; (3) upgraded iPad Air equipped with A8 processor and Touch ID will start to ship in late 3Q, earlier than last year; (4) low likelihood of 12.9” all-new design iPad making an appearance this year; even if it does, shipments will be low; and (5) no new iPad mini this year. We forecast iPad shipments will fall from 34mn units in 1H13 to below 30mn units in 1H14. The only new product in 2H14 is upgraded iPad Air likely, hurting shipments momentum. Facing tablet market structural change and lacking new products, iPad shipments could decline in 2014 unless more aggressive promotions are launched. Analysis iPad shipments to fall YoY in 1H14 to below 30mn units. We think the main reason for strong sales of iPad Air in 4Q13 was replacement purchase by old iPad users. However, sales will start to fall in 1Q14 due to a lack of new iPad users. We forecast iPad Air shipments will fall 30-40% QoQ in the 1Q14 slow season. Shipments of the new iPad mini with Retina display have been weak since debuting in 4Q13, and nothing like as strong as those of iPad mini on launch, due to cannibalization by iPad Air and competition from cheap Android-based tablet. All told, we forecast iPad shipments to fall YoY in 1H14 to below 30mn units given the lackluster shipments momentum of new models. Upgraded iPad Air likely the only new model in the iPad family. Compared with lower-margin iPad mini with Retina display, which shipments has been tepid, higher-margin iPad Air was a hot selling item in 4Q13, which will slow Apple in developing new iPad mini models. We believe Apple plans to launch upgraded iPad Air early this year, and will accelerate development of 12.9” iPad. As such, more resources will be allocated to these two products, which will affect the progress of the development of new iPad mini. All told, we think chances of the debut of a new iPad mini in 2H14 are slim. In addition, the 12.9” iPad is unlikely to be offered in 2014. For these reasons, we predict the only new iPad product in 2H14 will be the upgraded iPad Air. 12.9” iPad a growth driver on new applications, but unlikely to make an appearance this year; even if it does, shipments will be low. We believe 12.9" iPad could create new tablet applications and be helpful for shipments and earnings by offering better entertainment experience and productivity. However, we believe key to the success of the 12.9” iPad is the operating system. As Apple has prioritized developing the operating system for iWatch in 2014, we don’t think the 12.9”iPad will be on the market this year. Even if it does make an appearance this year, shipments will be low. Stocks for action Given iPad shipments are slowing on seasonality, and 2014F shipments will decline YoY, main iPad suppliers will experience slower growth in 2014 unless they have other new products or new customers. The growth slowdown bodes ill for share prices. Risks Lower-than-expected component shipments and/ or demand.