Recent reports are indicating that Apple (NASDAQ:AAPL) may be preparing for the release of a larger iPad. It is expected to have a 12.9-inch screen which would be much bigger than the 9.7-inch regular iPad. This seems to be in tune with Apple's strategy of making devices with a variety of sizes. The 7.9-inch iPad mini was the first step and the iPhone with a bigger screen that is expected to be released this fall will be the second step. Analysts are stating that a 12.9-inch iPad would compete with the 12-inch Surface Pro 3 which is currently marketing itself against the Macbook Air. The main reason that Apple would release such a device would not be to compete with the Surface Pro 3. The Surface Pro has not been a huge success as the company only had $409 million in Surface sales last quarter which included 10 days of selling the Surface Pro 3. While the Surface Pro 3 has been Microsoft's best selling Surface product ever, this isn't saying much considering the lackluster history that it has.
The reason Apple would create this product is to stem the decline of the iPad segment as it would be a product line extension. Apple sold 13.3 million iPads last quarter which was down from last year's June quarter sales which were 14.6 million. This larger iPad would be an attempt to join the ultra-mobile PC segment which includes the Mac Air. Gartner Research expects that this segment of the PC space will climb from 22 million units sold in 2013 to 32 million units sold this year. It projects that the category will further increase to 55 million unit sales in 2015. This is clearly a fast growing category compared to the slowing tablet category. The PC sales are actually increasing because business people still need to get work done; the keyboard that tablets provide aren't that functional when compared to full-sized laptops. Just as the size of the smartphone has been increasing, the size of tablets will also increase in order to have the devices allow for greater productivity. This seems to be a trend that may gain steam in 2015. Tablets have been lacking innovation that is necessary to drive the sales of new devices every year. An example of this would be the length that iPad 2 was on the market. It was released in 2011 and was just replaced by the iPad with retina display this March.
While I am not against the idea of Apple selling a larger iPad, to me it emphasizes the lack of a touch screen laptop in the company's product line. A touch screen laptop could be sold as an additional feature that users can opt out of. The idea of a touch screen laptop probably would cannibalize some iPad sales, just as a larger iPhone will be cannibalizing some iPad mini sales. While this cannibalizing is not a positive, it must be done to stay competitive with Windows machines. This would qualify as following the mantra "it is better to disrupt your business before someone else does". The fact that Mac sales increased 18% last quarter does not mean that the company should rest on its laurels. This data means that the company should put even more focus on this product line and work to improve it. The Mac OS would have to be changed to have this capability, but it can lead to great increases in sales.
The reasoning behind my belief that sales results could be impressive is because of Asian demand for this type of product. According to an IDC poll conducted in October of 2013, 82% of respondents from the Asian Pacific countries excluding Japan preferred a touch screen-enabled notebook as their next purchase. The study showed that Asian consumers wanted to have a notebook experience that is similar to the touch screen one that they used to interacting with on their tablet and smartphone. Apple tried to design a cheaper iPhone when it released the iPhone 5C because it was attempting to gain market share in countries outside the U.S. Therefore the precedent to design products for international consumers has been set. China revealed itself to be an important growth driver for Apple last quarter as Chinese revenues were up 28% year over year. iPad sales increased 51% and the iPhone sales were up 48%. Apple's new deal with China Mobile surely helped the iPhone results. If Apple goes ahead and creates a product to meet these demands, the company could see sales growth close to the growth that they have recently seen in their mobile device sales. Apple's Mac sales in China were up 39% last quarter. The Mac is a key driver to the company's ecosystem strategy. Increased Mac sales could help boost iOS devices to be even more successful than they have already been in China. The Chinese PC market passed the U.S. in size in 2011, so this market is clearly important to Apple. Last quarter sales in China represented 15.9% of total sales and the Mac segment represented 6.8% of total sales. Although this implies that size of Mac sales in China is currently small, China is the fastest growing segment that the company had by far. Therefore, it must be focused on heavily.
There have been rumors of a touch screen display in the next Macbook Pro that will be released. I can neither confirm nor deny these rumors. I am simply stating why it would be beneficial for Apple to release such a product. Christian Today recently reported that Apple may be releasing the 2014 Macbook Pro and Air as early as next week. The article bases this opinion on the increase in discounting of the current Macbooks being sold. Whether Apple releases this product this year or next year, it does not change my opinion that the company should start selling touch screen laptops.
The risk that Apple faces with regards to making products to fit the needs of Asian consumers is that China issues some sort of ban on Apple products. There was a recent report that China banned Windows 8 from government computers after Microsoft ended support of Windows XP. Since 70% of Chinese government devices were running Windows XP, this affected China more than other countries. Chinese government officials have stated that China is creating its own OS based on Linux. It stated that the desktop operating system will be created in 1-2 years and the mobile OS will be built in 3-5 years. Past attempts by Chinese firms to create a Linux-based software have not become popular. These attempts were KylinOS and StartOS. Even though it is unlikely that a country wide ban takes place, it is important to highlight this risk because China has recently shown a paranoia toward American made computers because of spying concerns.
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