Apple Inc. (AAPL) has a habit of making small strategic acquisitions to expand its devices technological and functional capabilities. The company recently acquired Dutch start-up Prss, which offer tools that help users to create iPad-compatible digital magazines, without involving any coding.
Apple is trying hard to boost iPad’s sagging sales by adding more work-related applications. Growth of iPad in the tablet market has slowed down considerably due to growing competition from phablets from Samsung, Lenovo and Hewlett Packard (HPQ).
The combination of Macbook and iPhone is also cannibalizing iPad sales, thereby putting its utility in the ecosystem under the scanner. Apple’s new bigger screen iPhone 6 plus may further put iPad sales under pressure.
Moreover, we believe that the utility of tablets as a replacement of personal computers is facing significant questions, as reflected by resurging personal computer sales. We expect Apple’s Mac sales to benefit from this trend in the near future.
Apple is rumored to launch a 12.9-inch iPad in early 2015. Given its bigger screen size, we believe that the rumored device will be popular among enterprise users. Further, the availability of Microsoft (MSFT) Office and the partnership with International Business Machines (IBM) are significant positives, which will drive iPad adoption among enterprises over the long haul.
Per Bloomberg, Apple is also planning to launch updated versions of iPad Air and iPad Mini some time later in fiscal 2014. However, we expect demand to remain muted due to iPad’s long sales cycle.
Nevertheless, we believe that any near-term weakness in iPad will be fully offset by the huge demand for Apple’s new iPhones. The company recently created a new record by selling more than 10 million units of the new iPhone 6 and 6 plus handsets in the very first weekend.
iPhone contributes a significant portion of Apple’s top line. The bigger screen brings iPhone at par with many phablets available in the market from the likes of Samsung, HTC and LG, which improves Apple’s competitive position.
We also note that the company is yet to launch the new iPhones in its fastest growing market — China. We believe that a China launch in late 2014 will significantly boost Apple’s top line and profitability for fiscal 2015.
Apple has a Zacks Rank #2 (Buy).
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