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Analyst: Retina iPad mini will eat iPad 2; Apple TV sees slow growth
Tuesday, November 12, 2013 @ 9:45pm

Well-connected KGI analyst Ming-Chi Kuo has issued a memo to investors saying that while the new releases of the latest iPads will cause a spike in sales for the holidays, he sees a repeat of last year in terms of the smaller iPad mini taking share away from the larger iPad model. He also predicts that the Apple TV segment will grow slowly unless Apple can land more content and app deals. Kuo has had a good (but not perfect) track record in predicting Apple moves and results in recent quarters.

The memo says that "higher-than-expected" sales of the new Retina iPad mini (just announced earlier today) along with the new full-size iPad Air will result in 23.1 million unit sales for the holiday quarter, with sales of the Mini doubling quarter-over-quarter to 4.5 million units. Apple sold a combined 14.1 million iPads in the previous quarter. However, the picture is not all rosy. Kuo says that combined shipments of iPad models will fall to 13.3 million units in the first calendar quarter of 2014, mostly due to a combination of a normal drop after the holidays and slower sales of the iPad Air. He believes that the Air will fall 43 percent after Christmas, due to "cannibalization" from Retina iPad mini sales as well as "structural changes" to the entire tablet sector. "We think current tablet products can, generally, sufficiently meet entertainment needs," Kuo writes. "As they are very cheap already, lowering prices won't effectively stimulate demand. Only new applications, which will bring about new growth momentum, will be able to solve the structural problems the sector faces." It is far from clear how the two models of iPad will compete with each other. While it is widely believed that the previous iPad mini outsold the full-size, heavier (but Retina display-equipped) full-size fourth-generation iPad, the new iPad Air effectively achieves the previous Mini's thinness and weight goals, effectively putting the two machines on par with each other apart from size and price. Both now feature the same processor (which is also shared with the advanced iPhone 5s), and are widely ranked as significantly better than current competitors. Surprisingly, Kuo believes the iPad 2, which continues to be offered by Apple, will be axed in the first quarter of the new year due to falling sales, which he predicts will hit 1.7 million units in the December quarter, falling to 0.3 million units in the first calendar quarter of 2014. Kuo said that the price of the iPad 2 didn't make it attractive enough to pull buyers when for $100 more they can have the latest and greatest full-size model, or for the same prize own the Retina iPad mini - also significantly advanced from the iPad 2. As for the Apple TV, he believes the company will launch a refreshed model with an A7 processor sometime in 2014, but says that "though Apple TV is positioned as a 'hobby' for Apple, we believe shipments of the product can serve as a gauge of Apple's progress in TV content and service." Kuo added that this meant he believed the Apple TV would see a final total of only 7.6 million units sold across 2013, and only 8.2 million units in 2014 unless Apple is able to find a breakthrough on "more TV content, services and its App Store, in our view." The alleged Apple-branded HDTV or alternative TV product won't come until 2015 or 2016 at the earliest, due to the iPhone maker's inability to secure disruptive deals for TV content. Analyst NPD DisplaySearch believes Apple has put the unannounced "iTV" product on hold in order to focus on another unannounced product, the "iWatch." "If Apple wants to launch iTV, the challenges of integrating content and service are more difficult considering the different TV content ecosystems (e.g. cable operators) in various countries. Moreover, establishing an iTV supply chain is very costly," Kuo wrote in his report. The alleged delay may hurt some of Apple's suppliers, such as Hon Hai (Foxconn), Radiant and G Tech among others.

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