Apple Inc. (AAPL): Disappointing FY13 iPad Performance

Earlier this week, Bloomberg inadvertently revived hope that Apple Inc. (NASDAQ:AAPL) would unveil new iPads at its rumored Sept. 10 iPhone launch event. This new rumor was quickly shot down by The Loop and other relatively reliable sources. Instead, most Apple-watchers now believe that the next-generation full-size iPad and iPad mini will be introduced at a launch event in October before going on sale in late October or early November .

The first-generation iPad Mini. Photo: Apple.

If this timeline is accurate, it would mean that Apple Inc. (NASDAQ:AAPL) is essentially replicating last fall’s product release timetable. This doesn’t seem like a very good strategy on Apple Inc. (NASDAQ:AAPL)’s part. A late October or early November release won’t give Apple Inc. (NASDAQ:AAPL) enough time to build up sufficient inventory for the holiday season.

As a result, iPads are likely to be supply-constrained through the 2013 holiday season. That means lost sales, as people who need to buy a present in time for Christmas but have trouble obtaining an iPad may opt to buy a rival tablet instead, such as Google Inc (NASDAQ:GOOG)‘s Nexus 7.

Disappointing FY13 iPad performance
Last year’s fall release of the iPad Mini and a refreshed full-size iPad spearheaded strong sales growth for the iPad product line. Apple sold 22.9 million iPads in Q1 of FY13, up 48% from the prior-year quarter, even though there was an extra week in Q1 of FY12. The average selling price declined because of the iPad Mini’s lower price point, but total iPad revenue still increased 22% year over year.

iPad sales would have been even higher but for supply constraints that prevented Apple from meeting the market’s full demand. Indeed, during a visit to Best Buy Co., Inc. (NYSE:BBY) in early January, I witnessed a salesperson explaining to a distraught customer that the company had no iPad Mini inventory in the entire New York metro area.

Pent-up iPad Mini demand therefore carried over into the March quarter, when Apple managed to post an even stronger 65% increase in total iPad unit shipments. iPad revenue was up roughly 40% year over year. However, by the end of March, an appropriate supply demand balance had been reached. As a result, in Q3, Apple posted the first ever year-over-year decline in iPad shipments. iPad revenue fell 27% on a 14% decrease in unit shipments.

In total, Apple’s iPad revenue has grown by a paltry 8% year over year through the first three quarters of FY13 (around 11% after adjusting for the extra week in FY12).