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Apple Inc. (AAPL): Forget the iWatch and Focus on the iPad

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The Apple Inc. (NASDAQ:AAPL) iWatch rumors continue to intensify. But are these rumors useful to investors? Maybe Apple really will launch an iWatch in the near future. Even so, long-term investors should focus on what they know, leaving speculation to the traders and gamblers. Fortunately, there is one growth driver Apple Inc. (NASDAQ:AAPL) investors can count on in 2013: the iPad.

Don’t play the rumor game
“We’re going to double down on secrecy,” said Apple CEO Tim Cook during a live interview at the D10 conference last May.

His comments weren’t enough to stop speculation. Since then, countless rumors have continued to surface. The latest rumor of an Apple-branded curved-glass device to wear on your wrist with built-in biosensors and a “full” version of iOS has, in effect, initiated a rumor war.

“We’ve been preparing the watch product for so long,” a Samsung executive VP said on Tuesday in a report to Bloomberg. Google Inc. (NASDAQ:GOOG) even joined the fray on Thursday, when the Financial Times reported that Google’s Android unit is working on a smart watch. The New York Times report that Apple Inc. (NASDAQ:AAPL) has a team of about 100 product designers working on a device tops the list as the most dramatic rumor of them all.

Exciting, right? Not really. Consider the following iTV headlines:

Aug. 17, 2012: Analyst Believes Apple Television Set Already in “Full Production,” Launch Timeframe Unclear

May 30, 2012: Apple to Unveil Television Set Operating System at WWDC?

Dec. 27, 2011: Suppliers to Begin Preparing 32″ and 37″ Apple Television Sets in Early 2012?

iTV rumors have persisted for years, yet the Apple TV set-top box remains Apple’s sole product in the TV market. Furthermore, the Apple TV software remains closed to third-party developers despite multiple rumors that Apple Inc. (NASDAQ:AAPL) would unveil an operating system allowing developers to make apps for Apple TV device.

Long-term investors should avoid speculating on new product lines. Apple has always been hard to predict, and 2013 shouldn’t be any different. Even if Apple did launch an iWatch, it is difficult to predict how successful the product could be or how profitable it would be for Apple to manufacture and market.

Refreshing the iPad product line
Predicting that Apple Inc. (NASDAQ:AAPL) will refresh its iPad product line, on the other hand, is a safe and proven bet. The company has made a clear habit of doing annual refreshes with its mobile devices since the launch of the iPod.

Two growth drivers behind Apple’s iPad line will make the iPad a huge contributor to Apple’s performance in 2013: the surprising success of the iPad Mini thus far and the fast-growing tablet market. If Apple can at least maintain unit iPhone sales, growth in Apple’s iPad segment (one-fifth of total revenue) could substantially move the needle on year-end profits.

The recently launched iPad Mini has seen surprising success with consumers. Despite a much higher price point than competing 7-inch tablets, like Google’s $200 Nexus 7 and Amazon.com, Inc. (NASDAQ:AMZN)‘s Kindle Fire HD, Apple Inc. (NASDAQ:AAPL) sold an estimated 7.7 million units (or approximately half of all iPad sales) during the fourth quarter, according to Canalys. Apple’s iPad Mini, priced at $329, lacks an HD display. But the display handicap and superior price tag didn’t stop Apple from capturing 49% of worldwide tablet shipments.

Furthermore, Apple’s fresh launch of the iPad Mini alone measured up well next to Amazon and Samsung in the fourth quarter, according to Canalys. Amazon and Samsung sold about 4.6 million and 7.6 million tablets, respectively; compare that with Apple’s estimated 7.7 million iPad Mini units sold and 15.4 million total iPad units sold in the fourth quarter.

The iPad Mini success is most likely due to the lower price point and the redesigned casing, both factors that should characterize Apple’s refresh of the iPad line during 2013. We can expect a markdown on current iPad generations as the new generation takes on the current price tag, as is the usual product pricing strategy for Apple. Furthermore, Apple Inc. (NASDAQ:AAPL) will probably refresh its first iPad Mini with a more competitive offering, launching it at the proven lower price point of $329. Finally, Apple will probably redesign the casing of the full-sized iPad to reflect the aluminum design of the iPhone 5 and the iPad Mini.

Source: MacRumors.

There’s little doubt these changes will lead to further growth in Apple’s iPad line — especially considering how fast the tablet market is growing. Canalys estimates that the market grew 75%, year over year, from 2011 to 2012. Going into 2013, ABI research expects this growth rate to accelerate to 125%.

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