With the much-ballyhooed decline in Apple Inc. (NASDAQ:AAPL) shares lately, everyone has an opinion of what’s going on in Cupertino. Is the ghost of Steve Jobs less than enamored with new CEO Tim Cook? Maybe it’s something closer to reality, like recent margin pressures, or increased competition across Apple’s entire lineup?
The fact is, Apple’s problems aren’t the result of some other-worldly interference — the explanation is much simpler than that. Apple Inc. (NASDAQ:AAPL) has tied its cart to the iPhone horse, and those market dynamics have changed drastically this past year, and aren’t going to stop changing anytime soon. With too little revenue — and even less profit — coming from non-iPhone sales, Apple’s found itself in a precarious position: Diversifying revenue opportunities, without cannibalizing existing sales.
The word from Japan
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According to a recent study , the words most often used in Japanese electronics stores in December were: ‘I’ll take a Nexus 7, please.” Research firm BNC conducted an electronics store calling campaign throughout Japan to gauge tablet sales at 2,400 retail outlets during the busy December shopping season. The results were surprising and, for Apple Inc. (NASDAQ:AAPL) fans, a possible precursor of things to come.
For the first time since May 2010, when Apple Inc. (NASDAQ:AAPL) began selling iPads in Japan, Google Inc (NASDAQ:GOOG)‘s Nexus 7 tablet alternative has taken over the top spot in the market. The Nexus commanded 44.4% of Japanese tablet sales in December, while Apple’s piece of the pie dropped to 40.1%. There are two primary reasons for the change at the top in Japan: number one, price . The Nexus retails for about $200 in Japan, compared to $300 for the iPad Mini, and $500 for an iPad. Price is a concern for Apple that’s going to manifest itself in the smartphone market, too.
Reason number two is the release of Apple’s iPad Mini toward the end of last year, which caused some inventory problems, and may also have cannibalized sales of previous iPad versions, skewing the survey’s final results. We’ll need to wait and see what impact not having readily available iPads in stock had on December tablet sales, but the message is clear; in Japan, at least, consumers are ready and willing to explore alternatives to Apple Inc. (NASDAQ:AAPL), particularly when price is part of the equation.
Takeaways for Apple
Inventory problems played a part in Apple’s drop from the top in the Japanese tablet market, but it’s the price difference between iPads and Nexus that made all the difference, and that should be an eye-opener for Apple Inc. (NASDAQ:AAPL). Microsoft Corporation (NASDAQ:MSFT) can also use Google’s ascension in Japan as a learning experience. Microsoft’s foray into tablets — its Surface device — goes head-to-head with Apple’s iPad, and shares one, indisputable flaw: cost.
With a starting price of $499 for Surface, Microsoft, just as with Apple Inc. (NASDAQ:AAPL), assumes it can get consumers to spend two or three times as much than a lower-end Google, or Samsung Galaxy, tablet. But, as more and more tablets hit the market, and the lines between the alternatives become even more blurred, Apple and Microsoft will both find themselves fighting the same, uphill battle. Don’t be surprised to learn that Microsoft’s Surface sales were muted, when CEO Steve Ballmer finally opens up about Surface sales — and its price point will be the reason why.
The survey of 2,400 electronics stores, and subsequent upending of Apple’s top spot in the Japanese tablet market, isn’t the end of the world. After all, we’re talking about a total of approximately 3.6 million tablets last year, and expected sales of 4.9 million units in 2013 – chicken feed for Apple, right?