iPad 2 Keeps Apple Ahead

Barclays Capital said its sales estimates for iPad 2 are likely conservative for Apple Inc.'s March quarter because of early shipment date. The brokerage still expects that competitors will find it tougher to compete with Apple in tablets than in phones given the integration of iTunes and Apple’s expertise in design and battery life.

We estimate iPad unit sales of 5.1 million for the March quarter which could prove conservative in the millions depending on availability of the iPad 2 upon launch which looks to be solid given the number of partners selling iPad 2 (Apple, Best Buy, Wal-Mart, Target, carriers, etc), said Ben Reitzes, an analyst at Barclays Capital.

Reitzes noted that every million in upside to his estimate for iPads would add about $0.20 to annualized EPS for Apple. Reitzes estimates 28.8 million iPad units for fiscal 2011 (33.7 million for calendar 2011) and 40 million for fiscal 2012 (42.1 million for calendar 2012 million), which are likely quite conservative.

Reitzes noted that the original iPad is still available through partners and a special clearance page on Apple.com for $100 off each SKU (Stock Keeping Unit). Apple also offered $100 refund to recent iPad buyers for purchases up to two weeks before the launch.

We view March 2 announcement as impressive and the early ship date -- March 11 -- as a positive surprise that should provide upside support to calendar first quarter iPad estimates. We also view Steve Jobs appearance as a positive as well, but we focus on Apple’s strong fundamentals and iPad supply chain builds of over 40 million units this year as key to the thesis moving forward. iPad 2 is impressive and should keep competitors at bay, said Reitzes.

With regard to tablets, Reitzes believes the supply chain is readying for about 40 million units this year, with production ramping up later in second quarter of 2011 through year-end with the iPad 2 serving as a potential catalyst. Reitzes said his findings back views from his colleague Jamie Yeh, and point toward significant success with Apple’s new product.

With regard to non-Apple tablets globally, there seems to be consensus around a 20 million figure for 2011, which suggests a more conservative stance than some of the bullish predictions of a few months ago (with some potential for downside), Barclays Capital said in a note to clients.

Reitzes said it seems that non-Apple tablets are still unproven and he believes the consensus non-Apple tablet figures are at a much greater risk of downward revisions -- while Apple still has an upside bias.

Apple held a special event on March 2 that focused on iPad 2. The iPad 2 will ship in two colors (black and white) starting this Friday (March 11) in the U.S. with Wi-Fi only configurations and models that run on AT&T and Verizon’s 3G networks.

The iPad 2 is expected to be available online starting at 3 am ET with devices sold in stores starting at 5 pm the same day. iPad 2 will be available in 26 additional countries on March 25 with more international launches in the coming months.

iPad 2 features an all new form factor including a 33 percent thinner, 15 percent lighter design, new dual-core A5 processor, front and rear facing cameras (allows FaceTime and Photo Booth), a gyroscope, and a long battery life (10 hours). The iPad 2 utilizes the same 9.7-inch LED-backlit LCD screen; not an upgraded retina display.

However, we had previously noted that given production/yield issues that a retina display was looking increasingly unlikely into launch and the absence of an upgraded display is likely a positive for iPad 2 gross margins, said Reitzes.

Despite new features, the iPad 2 price points are identical to the original iPad starting at $499 for the 16GB Wi-Fi model ranging to $829 for the 64GB 3G version (both AT&T and Verizon). While many will focus on the specs, Reitzes believes that Apple’s vertical integration with embedded software is perhaps what is most impressive.

The iPad 2 includes Photo Booth and FaceTime software on every model with easy access to powerful Apps for iPad. Made by Apple like GarageBand, iMovie, Pages, Keynote and Numbers. With the software built-in and the Apps by Apple, the software capabilities of the iPad will be tough for any competitors to match.

In addition to iPad 2, Apple also introduced iOS 4.3 which features faster Safari, iTunes home sharing, AirPlay improvements, ability to use iPad side switch to lock the screen rotation or mute audio, and a new personal hotspot feature for iPhone 4.

iOS 4.3 will be available as a free update for iPad, iPad 2, iPhone 3GS, iPhone 4 (GSM model) and third and fourth generation iPod touch users on March 11. Other announcements included two new apps -- iMovie and GarageBand ($4.99 each).