Aversion of this article was originally published on Fool.com
Apples (NASDAQ:AAPL.US) mythical jumbo iPad may soon see the light of day. Rumours of a 12.9-inch iPad had surfaced late last year, for possible inclusion in the companys fall product cycle in the latter half of 2014. Then, a reputable analyst with a good track record issued a research note that the device likely wouldnt be launched in 2014.
Now,Bloombergreports that Apple is indeed gearing up for a launch, entering mass production in the first quarter of 2015. Heres why investors should get excited.
Going after the enterprise
Some may not consider different display sizes an innovative selling feature. Innovative or not, offering different display sizes does allow Apple to cater to a broader customer base.
In fact, when the original iPad was unveiled in 2010, many brushed it off as simply a larger iPod Touch. That characterization is entirely true, but it also undermines the fact that there is quite a market for a larger iPod Touch, as evidenced by the fact that Apple has now sold nearly 225 million tablets in the past four years.
While iPad unit sales, as well as global tablet volumes, have decelerated in recent quarters, the long-term outlook for tablets remains healthy. Regarding the current state of the tablet market, Tim Cook recently told Walt Mossberg, Id call whats going on recently a speed bump, and Ive seen that in every category.
More specifically, a 12.9-inch iPad would likely do remarkably well in the enterprise market. One of the biggest criticisms for tablets as a product category is that its hard to be productive on them. Offering a larger model would enable greater productivity, particularly if
The iPad Pros killer feature
In May, reports suggested that Apple was working on a new split-screen multitasking feature in iOS 8, which is one of the competitive advantages thatMicrosoftSurface enjoys. The rumored feature was supposedly only intended for the larger 9.7-inch model, most likely because it may be less usable on a 7.9-inch iPad Mini display.
Apples WWDC developer conference came and went, with no official mention of split-screen multitasking. However, the iOS 8 beta that was distributed to developers did contain code that could enable split-screen multitasking, confirming that Apple is indeed working on the feature, even if it isnt quite yet ready for prime time.
If Apple reserved split-screen multitasking to the 12.9-inch iPad Pro, it could be the killer feature for the enterprise.
Big Blue will have a big impact
This is also where theIBMpartnership comes into play. Big Blue will help beef up Apples native mobile enterprise application library, as well as distribution through its global sales force, which has inroads with countless enterprise customers. Heres Tim Cook on the last conference call [emphasis added]:
Were very bullish about the future of the tablet market, and were confident that we can continue to bring significant innovation to this category through hardware, software, and services. We think our partnership with IBM, providing a new generation of mobile enterprise applications, designed with iPads legendary ease-of-use and backed by IBMs cloud services and data analytics will beone such catalyst for future iPad growth.
On the same call, Cook noted that tablet penetration within the enterprise market is relatively low, at 20%, compared to PCs. He believes that Apple can help get that figure to 60% in the foreseeable future. The iPad Pro combined with the IBM partnership could do wonders for enterprise tablet penetration.
Financial implications of the iPad Pro
When the iPad Mini launched in 2012, it was a double-edged sword financially. The effective move downmarket expanded Apples addressable market and presented new revenue opportunities, but at the cost of lower profitability.
Immediately after launch, then-CFO Peter Oppenheimer confirmed, The iPad mini gross margin is significantly below the corporate average. That contributed to themargin headwindthat Apple faced in early 2013, as iPad Mini sales ramped up. Additionally, since the iPad Mini starts at lower price points, iPad average selling price declined as a natural result.
An iPad Pro would inevitably be priced higher than the iPad Air and fetch higher gross margins, which could help boost iPad average selling price (ASP) and profitability. The overall iPad product mix in terms of units would likely remain skewed toward the consumer-oriented Air and Mini, but the addition of the Pro could help mitigate the current downward trajectory.
The jurys still out on large tablets
After testing out Samsungs 12.2-inch tablets at CES 2014 earlier this year, I wasquite skepticalabout such large form factors, irrespective of original equipment manufacturer (OEM). Questions remain; but the important distinction is that any tablet this large is not positioned as primarily a consumer offering.
It may still be too early to call, but large tablets do offer much more potential in the enterprise, which is exactly what Apple would be going for.
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Evan Niu, CFAowns shares of Apple. The Motley Fool owns shares of Apple.