iPad

The iPad units numbers were not a surprise (except perhaps to some of the professional analysts who do not read Apple's press releases). Among the more accurate (amateur) analysts, the range was from 3.2 to 3.45 million with an average of 3.32.  My estimate of 3.3 million was the mode of the distribution.

Apple sold 3.270 million in the first ever quarter.  The ASP came in at $662.39, below my expected $700 but higher than the iPhone.

The only unknown is the gross margin.  Given the overall GM and the other products' margins, I am backing out a 33% margin for the quarter.  I had expected 40% but the lower margin may be a result of launch quarter issues (shipping and allocation of stock) and perhaps a lower target margin for the product.  It should be noted that the iPad margin sits between the Mac and iPod (around 30%) and the iPhone (around 60%).  The iPad is a new category that sits between the Mac and iPhone in terms of usage and it seems it sits also half-way in terms of margins.  Going forward, I'm still modeling a 40% GM for the iPad.

Overall, I estimate the iPad added $717 million of operating profit to Apple's bottom line. Not bad for a product that was almost universally panned on launch day.

The fact that the number of people planning to buy is more than 70 percent of those who have already bought is a good sign for a device that sells for at least $499, said Britt Beemer, America's Research Group founder. "That shows incredible demand for the product."

via Still plenty of demand for iPad: survey | Reuters.

And this says nothing of demand outside the US, which, in my opinion, is even higher.

The contrast between this "incredible demand" and the "incredible derision" with which the product was met by the technology media speaks volumes of the disconnect between the market's most demanding and most vocal customers and the silent vast majority.

See also: asymco:ipad

With the iPad still unavailable three months after its launch and with only 1.7 million iPhones available for purchase in the first three days, Apple's inability to meet demand is surfacing as its most immediate and glaring problem. This problem merits the deployment of some of the cash Apple is hoarding.

As I wrote in May, Apple's next billion users are in waiting. However, to serve them in a timely manner requires a new approach to product launch and ramps.

Apple has imposed upon itself a yearly product cycle for the iPhone and the iPod [and, probably for the iPad].  This is a brilliant move because it keeps the product fresh without having it seem disposable.  It also keeps competitors within its turning radius. However, the challenge is that the distribution network has to be filled rapidly and drained rapidly to maximize availability. This gets harder and harder as the volume grows. Imagine having to manufacture and ship into the channel a billion devices in less than a quarter.

This year's iPhone 4 launch was heavily over-subscribed.  If Apple had enough supply, launch sales could have gone as high as 2.5 million, one analyst believes. Apple admitted mis-diagnosing demand and problems arose during the reservation process. There were insufficient units for pre-order, never mind for users walking into stores.  The shocking thing is that three months on, the iPad is still unavailable to impulse buyers who might want to pick one up with their iPhone.  This despite the fact that most of the world does not have any purchase option.

Now I ask what will happen next year?  Supply may balance with demand by October and strains will show again around Christmas.  Then what?  The iPhone 5 will be getting prepared with another 50% to 100% growth in demand.  How will June 2011 and June 2012 look?  Will Apple have 4x the supply of iPhones and iPads needed to maintain growth?

There are various solutions possible, but if Apple wants to maintain the product cycle, the event marketing and the "reveal" that builds brand value, it needs to change the way it manufactures.  By investing in automation, locating plants near to buyers and by integrating suppliers into production, it can get the quantum leap in supply it needs.  These are capital-intensive solutions, but Apple's capital is underemployed.  I see no better use for the rapidly-building cash pile.

With the recent iPhone 4 launch the media spotlight has faded on the iPad.  However, the iPad is still missing in action at many (most? all?) Apple stores.  I called four stores in the Boston area and they are only available by reservation.  The waiting time varies but I've been told to expect one week wait at one store and an indeterminate wait at the others.

The online store shows 7 to 10 business days waiting time for all models.

So my prediction from six and a half weeks ago came through, with a couple of days to spare. iPad has surpassed iPod in web traffic. It took only two months and two million units, compared to almost 3 years and about 40 million iPod touches out there. That means iPads use the web roughly 20 times as much as iPod touches.

Also, not only has iPad more than doubled Android 2.1's share, it's now past all Android OS's combined. .

via Deagol's AAPL Model: iPad web usage passes iPod.

Good call.

Giving Android the green light:

In addition, for the time being, Microsoft will not offer new Windows versions to support non-Intel architectures that are targeting tablet PC development, noted Guggenheimer.

The formation of a market segment for a new product category necessitates the existence of a supporting ecosystem made up of a complete industry supply chain, Guggenheimer emphasized. He cited the netbook market as an example; units were selling well initially and people believed that the market was going to be established as a new segment, but recently market growth has slowed down considerably, Guggenheimer pointed out.

via Whether tablet PCs can become market segment is still uncertain, says Microsoft VP.

I remember when Microsoft used to be paranoid.

Best Steve Jobs quote from D8

7:06 p.m. PDT: Is tablet eventually going to replace laptop, Walt asks.

7:07 p.m. PDT: Jobs: "When we were an agrarian nation, all cars were trucks because that's what you needed on the farms." Cars became more popular as cities rose, and things like power steering and automatic transmission became popular.

7:07 p.m. PDT: "PCs are going to be like trucks"

7:07 p.m. PDT: "They are still going to be around...they are going to be one out of x people."

via: CNET

iPad is a product competing along a new basis; that of convenience and simplicity.  The PC vendors are motivated to serve their most demanding customers who expect loads of features and the highest specs. Most people who write about technology for a living will also side with the "truck drivers" because they "know more about transportation than anyone else".

When you hear someone say that the iPad is just a toy or that it's only for consumption and not creation, think about that professional truck driver's bitterness at seeing cheap consumer vehicles cluttering up the roads, doing nothing but serving the unproductive whims of an uneducated population.

Softbank stopped accepting reservations for the iPad after only three days.

In one Twitter exchange, Mitsuru Yoshii sent a message to Softbank Chief Executive Masayoshi Son saying that the iPad was the "21st century's black ships."

In response to the historical reference to the U.S. Naval fleet that opened up Japan to the West in 1853, Mr. Son wrote back: "Indeed!"

via Japan's iPad Frenzy Signals a Sea Change - WSJ.com.

In Japan the term "Black Ships" has come to symbolise a threat imposed by Western technology but also the opening of Japan to the West and the awakening of imperial ambitions that lasted for a century.

“Checks indicate that US iPad sales remain strong post-launch, driven by rising consumer visibility to iPad’s user experience, sustained PR/word-of-mouth marketing, 3G iPad launch, and broadening iPad apps/content,” Abramsky wrote in a note to clients this morning. “We believe Apple is now selling >200k iPads/week, greater than US Macs (est. 110k Macs/week) and just below US iPhone 3GS first quart (246k/week).”

Retail checks in mid-May showing widespread iPad stockouts at Apple stores and Best Buy. The 3G iPad is sold out at many Apple stores and about 25 percent of them now have only selected Wi-Fi iPads available. Waiting lists are not uncommon.

... Abramsky raised his global iPad outlook for 2010 from 5 million to 8 million.

via Apple Selling More iPads Than Macs | John Paczkowski | Digital Daily | AllThingsD.

iPad is not only outselling iPhone version 1, but, soon, iPhone version 3.

About a month ago, we said we'd like you to use a credit card when you buy your iPad, and that was the best way we could think of to make sure that people only brought two per individual," said Johnson. "And then it came to our attention that Diane [Campbell], through your story, was very interested in buying an iPad with cash, and we made a decision today to change that."

Johnson said our story triggered a company-wide policy change. As of today, anyone can pay for an iPad with cash.

As a gesture of goodwill toward Diane Campbell, the woman whose experience brought the issue considerable publicity, two employees visited her home today to offer her an iPad free of charge.

"I am just so excited," said Campbell. "Words can't explain right now."

via Apple Axes 'No Cash' Policy for iPad Sales - Mac Rumors.

Continuing from Will Apple rule the iPad market? | Asymco.

The first claim is that

it is unclear if [Apple] will end up dominating the market the way it has come to rule the digital music player market with the iPod.

After hearing a thousand voices cry out that the iPad is nothing more than a bigger iPod touch (which, plainly, it is) it's amusing to read that its similarity with a sibling ends when it comes to market performance.

Let me make one claim up-front: the iPad is more of an iPod than the iPod.

The original iPod was successful because it had a significant integrated value chain bolted on. Apple disrupted music with a value chain, not a product. It changed the way music is bought, consumed and even how it is produced. It changed the economics from retail down to songwriting.

This is why it came to dominate its market. Every competitor that took a run at it did so with a partial solution to the value chain. Often it was nothing more than a music player, and in some cases (e.g. Zune) it was bundled with some other pieces of technology, but poorly executed and too late.

The iPad comes with an even bigger value chain bolted on: the App Store. Apple is flogging not just an "app player" but also a new way to develop and distribute software. If you cut "music" and paste "apps" you see the immediate parallel between iPod and iPad. The app ecosystem will quickly grow to be larger than the music ecosystem with the mobile software business already eclipsing the music business.

A competitor launching a tablet device will have to somehow overcome the momentum of billions of downloads fed by hundreds of thousands of apps built by tens of thousands of developers for hundreds of millions of users.

The iPod juggernaut pales in comparison to the iPad supernova. The iPod had no apps or dedicated developers. Its ecosystem consisted of a handful of music companies. The only thing that made it "sticky" was the tie-in with one type of content.

The iPad on the other hand has a thousand other jobs to do for its users. It has a rich tapestry of functionality and a multi-dimensional (literally) user experience.  It's a platform. It's even powerful enough to impose new standards on the web itself and to suggest that search is a bygone activity.

So to suggest that Asus or Dell will somehow build "iPad killers" sounds asinine. These competitors don't even grasp what the product is and what it's for.  Sony said they don't see a market for it. Microsoft, trapped in the innovator's dilemma and overshooting the market by miles, said they don't understand what the point is because users want full PCs.  Google asked what's the value of a big iPod. I could go on, but there was not a single company in the industry who recognized what they were looking at in January. Apple keeps a tight lid on new products so that competitors don't get a head-start on copying, but in the case of the iPad, advance knowledge would not have had any impact. Competitors look at the iPad and see nothing.  They'll only react once the market explodes and they start to feel belated pain.

If, and it's a big if, they do recognize what an iPad is, their response cycle is going to be measured in years. On hardware, they were blown away with a product that had twice the power, half the bulk, twice the battery life with half the price of what they had on the shelf. They may catch up on hardware in a year or two and launch some sort of iPad-like assembly of components, but that is like making the first iPod killer in 2002.

Then there is software. Their software supplier (Microsoft of Google) will have to build a platform that works. That will take years. Years during which the iPad will penetrate every geography, demographic and vertical market.

Google might move more rapidly than Microsoft, but they will produce an open source poster child of a platform. Fragmented and rough around the edges to the point of looking like a hobby project. Their flea market store will also have the smell of fresh glue about it. Microsoft is so far behind the curve that I don't even think they will try to move the tiller.  Their view of the market was betrayed by the recently knifed Courier demoware. To suggest a challenge to the PC/Windows model inside Microsoft is a career-limiting move so don't expect their brightest to be lining up to propose new platforms to management.

What about HP? Assuming they overcome the pitfall of NIH that kills 80% of integration efforts, they will still need to perform an enormous amount of heavy lifting to get WebOS to be a competitive experience on a tablet. Most opinions were that Palm came pretty close with a smartphone, but that was nowhere near enough to stay alive, never mind challenge iPhone.

Then there is the ecosystem. Building it is just not something I can even begin to roadmap. What about developer tools, SDKs, frameworks and evangelism? With a Palm division, HP is the best positioned of the PC vendors but it has a chance at being a player as much as Creative did vs. the iPod, or needless to say, Palm vs. the iPhone.

So the iPad challengers face five daunting obstacles:

1. Recognition of a threat from a seemingly benign product
2. Execution on hardware against the best integrator on the planet
3. Execution on software against a new UI metaphor fortress surrounded by a patent moat
4. Integration of hardware and software to a sublime whole
5. Re-building a value chain for which they have no handle vs. a broad and deep existing universe of app/content creation distribution and consumption enjoying logarithmic network effect value.

That does not even touch the logistics, sourcing, margin and pricing challenges of world-wide distribution of the whole value chain. Nor does it cover the lock-in of advertisers to new tools for creatives or the billions of daily views from a platform that is blindingly dazzling.

To put it in the language of disruption, by the time the competitors launch symmetric attacks on the iPad, Apple will be the incumbent. And we all know that symmetric attacks never work against entrenched incumbents who have all the levers of power at hand to deploy in a withering counter-attack.