A jump in sales of Apple iPads during the pandemic could translate into lower sales of the devices this year and next, BofA Securities says.
Apple (ticker: AAPL) had a busy September. At the beginning of the month, the tech giant unveiled a handful of new products at its “Far Out” event, including new Apple Watches, AirPods, and the iPhone 14. News surrounding the new phones has made headlines in recent weeks, as Initial data showed that demand for the more expensive iPhone 14 Pro and Pro Max models was stronger than for the base iPhone 14 and iPhone 14 Plus options.
Then, an analyst from Jefferies wrote that demand for the iPhone 14 appeared not to be as strong as expected in China. And Bloomberg reported that Apple reversed plans to boost production of the phones later this year.
Following the Bloomberg report, BofA analyst Wamsi Mohan downgraded shares of Apple to Neutral from Buy with a $160 price target, saying a slowdown in consumer spending could hit sales of both services and hardware.. On Monday, Mohan cited new concerns about sales of the iPad.
“Although the device continues to attract a high proportion of new users (about 50% of purchasers in any quarter even pre-pandemic were new to the device), replacement rates remain muted,” Mohan wrote in a research note Monday. “We see this as a function of the category being in structural decline.”
Mohan wrote that according to BofA Securities’ analysis, about 41.8 million excess iPads were sold in 2020 to 2022, partly due to new demand but also because customers replaced their devices faster as they worked and took classes from home.
“In our view, a quarter of the incremental sales are linked to quicker replacements, which we expect to result in year over year declines in iPad units shipped in 2022 and 2023,” Mohan wrote. But “if post-pandemic work/study trends result in an inherent change in customer behavior and increase replacement levels, there could be upside to our iPad outlook for 2024.”
The company didn’t immediately reply to a request for comment.
At the same time, the analyst said, the average sales price of iPads could drop as customers deal with the current red-hot inflation. “2023 ASP should trend lower vs. 2022 as lower-end iPads increase as proportion of sales in a weaker consumer environment,” he wrote.
In the company’s fiscal third quarter, the iPad accounted for $7.2 billion of revenue for the company. Apple posted total sales of $83 billion.
Apple stock rose 0.2% on Monday, while the S&P 500 fell 0.8%. The stock has fallen 21% in 2022.
The company is scheduled to report fourth-quarter results on Oct. 27.
Comments