Barclays Capital has said its research still points toward Apple Inc. continuing to innovate in the iPad category with an iPad 3 launching in the March 2012 timeframe with an HD screen, Siri integration and a faster processor.
It is possible that Apple keeps the iPad 2 in the category as well. First, we expect a possible 'iPad 2S' that includes a faster processor and Siri integration. Second, we believe that Apple will keep the current 16GB version of the iPad 2 in the line-up next year, using it as a lower-priced option to compete with new entrants, says Ben Reitzes, an analyst at Barclays Capital.
Indications in the supply chain around calendar first quarter production patterns back these views, even though fourth quarter momentum has waned. Reitzes has also been asked more and more about a possible delay of the iPad 3 to the fall of 2012.
At this time, he believes that Apple may want to introduce an iPad that is compatible with 4G LTE technology, perhaps accounting for the speculation of a new iPad stock-keeping unit at that time.
Reitzes currently estimates iPad unit sales of 13.9 million for the December quarter, which may prove optimistic, depending on how sales accelerate upon Black Friday. For fiscal 2012, he estimates iPad unit sales to grow 47 percent to 47.7 million versus 32.4 million in fiscal 2011.
Starting with the unit sales report for the September quarter, released Oct. 18, the iPad has clearly been a concern of him and investors.
Apple reported iPad sales of 11.1 million in its fiscal fourth quarter (up 166 percent year-over-year), falling short of Reitzes raised estimate of 11.9 million and the raised consensus of 11.7 million (he believes investor expectations were even significantly higher than consensus).
Apple ended the quarter with channel inventory of 2.5 million units, a sequential increase of 1.45 million, in line with the company's target range of 4 to 6 weeks but indicating sell-through may have been flattish quarter-over-quarter.
Apple has indicated it expects to set a new record for shipments in the December quarter, a period that also benefits from an extra week (14 weeks versus the normal 13 weeks).
Reitzes believes the $199 Kindle Fire from Amazon may have paused some level of tablet demand in the U.S. earlier this quarter given its disruptive price point.
However, the jury is still out on the Amazon Fire, and he needs to see how well the Wi-Fi-based 8GB product works over time within Amazon's ecosystem as a true iPad competitor. He believes the iPad still stands out as the industry standard in terms of software integration.
Reitzes says the reviews for the Fire are less than flattering. The positive reviews seem to focus on price and ability to consume basic content while negative reviews focused on what it lacked (no camera, microphone, GPS, Bluetooth functionality, calendar or note pad). Some of the negative reviews focus on speed as animations don't flow like an iPad.
According to Apple, the Kindle Fire represents yet another fragmentation of Android where Apps won't work on other Android-based devices. The fragmentation could bolster Apple's approach, which is a standard experience across iOS devices.