This past weekend, Apple’s (NASDAQ:AAPL) much hyped iPad was released to consumers and it appears to be a hit which will likely bolster the company’s stock price.
The iPad is an addition to Apple’s already well-established line of innovative devices, like the iPhone and the iPod, which were revolutionary to the wireless phone and digital music industries, respectively. It is expected that the iPad will have the same effect on the tablet PC world as its sister products have had on their respective markets, by igniting a much needed spark to a market that has not been attractive to consumers. If this is the case, then the iPad will likely offer positive support to Apple’s stock price.
As for market share, there is plenty available for Apple. The tablet PC market was first introduced to consumers in the 1990’s, but didn’t get much attention until 2001 when Microsoft (NASDAQ:MSFT) demonstrated the first public prototype of a Tablet PC. Even after this, the advantages that a Tablet PC offers, such as lighter weight, touch screen ability making it easier to navigate and the ability to use a computer in environments which are not conducive to a keyboard and mouse, didn’t catch on with consumers. In fact, according to a recent research study, tablet PCs only account for less than 1% of the entire PC market.
According to research firm NPD Group, in order for the iPad to successfully penetrate the PC market and gobble up additional market share it will have to attract consumers and convince them the iPad can replace a traditional laptop or PC. Some obstacles that Apple will likely face include the fact that the iPad is unable to run Adobe Systems Inc.’s (NASDAQ:ADBE) flash which is used to view online videos and animations and is used to access nearly 75% of the web’s videos. A second obstacle that Apple will likely have to overcome is the 3G network that it offers through AT&T (NYSE:T). Currently, iPhone users are complaining about coverage and clogs in the network, with the addition of the iPad it is expected to only get worse. Lastly, the lack of USB ports could hinder the iPad’s appeal.
To make things even more challenging, research firm, NPD group states that nearly 60% of consumers that currently own an Apple product do not foresee purchasing an iPad in the near future. With this in mind, Apple will have to focus on attracting a customer base that is not accustomed to Apple products, which is something not foreign to the company; it has successfully done so with both the iPod and iPhone.
As for the obstacles faced by the iPad, Apple has been pushing the implementation of a new version of HTML language called HTML5 to view videos on the web and is considering partnering with network providers other than AT&T. Additionally, Apple is known to be marketing wizard and has the ability to entice consumers, whether it is through pure innovation or the sleekness of its products.
From an investor’s perspective, Apple has kept its trajectory with the iPad of focusing on a quality product while keeping costs low and margins high. From a sales perspective, analysts expected to Apple to sell 200,000 to 300,000 iPads on Saturday, but Apple crushed these expectations selling 600,000 to 700,000 units. It appears that consumers have been captivated by Apple’s new product and are truly optimistic of the innovative tablet. If these trends continue and shipments meet expectations, the iPad could potentially add up to 6% to Apple’s expected performance this year.
In a nutshell, consumer demand will be the driving force behind the success of the iPad and only time will determine the true impact of the device on Apple’s bottom line. As for now, the outlook appears to be promising.
Over the past year, Apple’s stock price has more than doubled as it closed at $235.97 on Friday.
Gains in Apple could also help lift the iShares Dow Jones US Technology (NYSEARCA:IYW), which allocates nearly 10% of its assets to Apple, and the PowerShares QQQ (QQQQ), which allocates nearly 15.4% of its assets to Apple. IYW and QQQQ closed at $58.44 and $48.16 on Friday, respectively.
Investors should be aware, however, that a slowdown in consumer demand could rain on Apple's parade. A good way to protect against such risks is through the implementation of an exit strategy that identifies price points at which an upward trend could be coming to an end. And in the case of Apple and the ETFs that have stakes in it, those price points have already been hit.
According to the latest data at SmartStops.net, an upward trend in shares of Apple could come to an end at $224.27. An upward trend in IYW and QQQQ could come to an end at the following price points: IYW at $57.16 and QQQQ at $47.13.
Disclosure: No Positions