iPad vs. iPhone: why we got the iPad forecasts wrong

The iPad was announced to a loud chorus of disapproval and disdain. It’s easy to forget the overwhelming scorn and insult poured on the product for months before and after sales start. Analyst forecasts were comical. At this time it looks like all 12 month iPad unit forecasts will have missed by more than 100% (mine included).

As data on iPad performance was published for the first quarter’s sales, the mood swung from ridicule to ridiculous.

Without regard to the growth of comparable products, analysts seem to have latched on to production figures which are notoriously inaccurate. The problem with production numbers is that they are only very loosely coupled with shipment numbers to customers. There are questions of work in progress inventory, finished inventory and the actual accuracy of reports. Production also follows a ramp and is not constant over time.

Another way to analyze a new product is to think about the distribution. Although late in the quarter some large distribution deals were made public, the channel did not have much time to be filled before the end of the quarter. Not only that but there is easily obtainable evidence that the iPad did not reach most international markets. Apple announced how they were rolling out a few countries every few months.

This trickle of international sales indicated to me that the iPad sales pump was not yet fully primed. My initial estimate was for in-line sales of 3.3 million which I aggressively increased to 5 based on some of the production numbers being mentioned.

This figure turned out to be 22% too high, but not as big an error as some of the other analysts.

Another way to look at it is through comparable products. The nearest comparable product to the iPad is actually the iPhone. It was a similarly “revolutionary and magical” product launched with a similar constraint on production and distribution. It was also built and marketed by the same people. They’ve been down this road before and have honed the process from the iPod through the iPhone over a decade.

If we look at the iPhone and compare it with the iPad, we see just how popular the iPad really is. It may not follow the same seasonal pattern as the iPhone, but it will probably ramp in a similar way. In the following chart I also show the iPhone Growth rate (right scale).

The iPhone has been able to maintain over 100% y/y growth on average. I don’t see a reason why the iPad can’t repeat this pattern over the next three years.

  • Joe_Winfield_IL

    The only problem I see with iPad growth forecasts is that every purchase requires a justification. Any tablet buyer will be either justifying adding a new, expensive product class or justifying a tablet instead of a PC. With iPhone, buyers are already accustomed to buying a new phone every couple of years. Blackberry and Palm had already primed the pump, so after the initial price drop buyers didn't have to justify anything.

    The flip side is that there is no competition yet. Apple is getting nearly every single touch tablet buyer on the planet today.

  • We we're just discussing the iPad sales here in the office and I wondered if the iPad will follow the same sales approach as the iPhone?

    That means that come next February we'll be seeing a new improved iPad with a faster chip (1.4Ghz?), more memory, a retina display (unlikely I think – 2048 x 1536 is enoromous), front facing camera and a slimmer lighter design. All for the same price it is now. That will absolutely crush any competition.

    What also might happen, is the current iPad will come down by a hundred dollars. This will sell like crazy.

    So I think that 100% y/y growth may be an easy target.

  • iPhone and iPad are not so comparable. The iPhone requires also a mobile line, in this case just AT&T in the States, so there were lots of people who would have like to buy the iPhone at launch time but didn't because it implied changing their mobile operator. iPad is free from this constraint. Therefore, it is normal that sales of iPad are bigger than those of the iPhone at the same stage.

    • J Ives

      Apples and oranges may not share the same constraints but are still not comperable.

      • Jud

        You mean…not incomparable?

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  • Priit

    Hmm, today Jobs announces 19m FaceTime devices. Ok, Apple sold some iPhones after 25.09, but still, this means one thing – Touch sells extremely well, which is surprice to me, but even more I'm surprised by the fact that Touch seems still be the only iOs device that has NO production problems whatsoever and is available virtually everywhere, in every department store and in every country. Why is that?

    • r.d

      because it is not really using Retina Display. It has
      same resolution but it is not IPS display screen.
      currently only LG is making the screen.
      Initially iPad had the same problem as LG the only manufacturer.
      Plus ipod Touch does not have glass housing
      which is also have manufacturing trouble
      notice that white iPhone is missing in action.

      • Priit

        I try to compare here Touch & Pad only, leaving Phone alone. And afaik the only mayor difference is screen? Or is that Pad's aluminium "unibody" style carved back also a bottleneck?

        And btw, Retina Display by definition means only specific resolution, nothing else.

  • Lee Penick

    Subjectively, I feel Apple has more creativity than the rest of the industry combined. Any objective evidence on that topic Horace?

    I was very pleased to hear about the app store for Mac. I've wanted to have that for several years. Love the idea of lots of quality, small programs readily available.

    Way to go Apple, keep innovating. Camera's on the iPad next please.

    • Marcos El Malo

      "Any objective evidence on that topic Horace? "

      Horace did a story yesterday entitled "60 percent of Apple’s sales are from products that did not exist three years ago". Is that sort of what you had in mind?

      How does one objectively measure creativity? One possible way to measure creativity is to look at how disruptive it is. Apple changed the smart phone market overnight when they released the iPhone. With the iPad, they've created a whole new product category that is eating into established categories.

      I hope this gives you something to work with.

      • Lee Penick

        Thanks, I appreciate those ideas and the input.

        One possible way to measure might be a list of the most important advances in the past 5 years, (relative to mobile internet, or computers in general) and which company developed the idea. Something along those lines. Horace amazes me with the data he pulls out and puts together, I wouldn't be surprised if he already has this or something like it.

    • asymco

      Innovation is fairly easy to find a proxy for (usually financial performance). Creativity (or more precisely, invention) is more elusive. Patents perhaps, but there is a lot of junk patents out there. I think Apple has a very impressive patent factory.

  • Atul Barry

    With the introduction of the new MBA line, could there be some dent in iPad sales?

    The price of the 11", 64GB MBA is only $170 higher than a 64GB, Wi-Fi + 3G iPad; the MBA also has a keyboard and runs a full OS X.

    At least people who were complaining about the lack of a KB and a 'full' OS in the iPad would now be quietened!

    • unhinged

      The new Air is Apple's "netbook" entry. And I think the iPad will cannibalize sales of this too. 🙂

  • Stu

    I've been wondering, and may post on AFB, about the influence/effect the non-professional analysts had on AAPL's results.

    If you took the average of the professional analysts, Apple's numbers would have looked spectacular.
    However, given that the non-professional analysts numbers were significantly higher, the whisper EPS & production numbers were also much higher. Everywhere, the non-pro analysts were very accurate, with the glaring exception of iPads. Because of this, the stock tanked after earnings release.

    I believe that if the non-pro analysts weren't so widely published at places like Fortune, and even AFB, that the professional analysts would not have used the non-pro numbers as a cheat sheet for the whisper numbers. This would have made the earnings look great relative to the pro's numbers. Instead, the stock got hammered, because of one miss (and maybe GM).
    Perhaps the non-pros, while trying to help their fellow investors, are helping too much (or at least too many), and actually hurting them instead.
    And, obviously, the pro's are not doing real homework. But that's always been the case.

    • asymco

      Those are provocative thoughts, Stu. Pros are usually inaccurate, that much we know. But they're starting to improve as their performance is being highlighted. It's impossible for Pros to collude on being inaccurate (too many of them for a conspiracy to work). So we can only conclude that they don't spend the time. The value of the non-pros work may be that they force pros to improve their performance.

      • TomCF

        More likely the pros just regurgitate the non-pros work. (cf. mass market media)