iPad

Much of what is published here relies on data, lots of data. It's important that data be published along with conclusions, but data in spreadsheets is often difficult to read. Spreadsheets are not "productized" so they are hard to explain and therefore impossible to share.

However, I am considering sharing the data I have in a format that is easier to read than a spreadsheet but richer than a screen shot of a chart.

To that end I've begun experimenting with a solution based on a service called Roambi. Interested readers can download Asymco authored "roambi" files which I call ADDs (Asymco Data Downloads) will display rich data sets on iOS devices. These representations are interactive and easy on the eyes.

Rather than bore with details, the following images should be sufficiently descriptive.

So, to start, I am making available the market data from the article Android's Pursuit of the Biggest Losers for your viewing pleasure.

Here is a quick FAQ about this new way of enjoying analysis:

• Q: What is an ADD?
• A: An ADD is an Asymco Data Download, a new way to look at the data behind the analysis with far more detail and a visually appealing representation.

• Q: How do I get ADDs?
• A: You will see the latest ADD featured in most pages in this blog and new ADDs will appear from time to time in blog articles. Here is an example:

• Q: What do I need to get and use ADDs?
• A: Any iOS device (iPod touch, iPad or iPhone) and download the Roambi visualizer app which is free.

• Q: Where do I get the Roambi app?
• A: Tap Here To Install Roambi

• Q: Is the iPad version different than the iPhone?
• A: Yes, much better.

• Q: Where can I get help on using the app?
• A: Hopefully you won't need help, but there is help in the app and at Roambi's site.

• Q: Will ADDs work with Android?
• A: No.

• Q: Will ADDs work with <insert non-iOS device here>?
• A: No.

• Q: Can I see ADDs on a Windows PC or with a Mac?
• A: No.

• Q: Can I download the actual spreadsheets?
• A: No.

• Q: How much does it cost?
• A: ADDs are free.

• Q: What if I see an error?
• A: Send me a message.

• Q: Will you publish more of this data, like the Apple financials?
• A: Yes. I hope to publish all my data. Stay tuned.

• Q: I don't have time to read your blog every day, can I just get the data?
• A: I'm considering ways of creating a "premium" service. If you are interested send me a message that you would like to receive email-based links. Send request to: horace.dediu -at- asymco.com.

Tap Here To Download

Tap Here To Install Roambi

Gartner explicitly explained so in its press release: "Gartner's PC group does not track media tablet sales in this PC shipment data, so iPad sales are not included in these results

via Is Apple the real U.S. PC market share leader -- or soon will be? | Betanews.

The reluctance of  industry analysts to measure the iPad as a computer is a fascinating and vivid symptom of how analysts conspire with their customers to smother visibility of impending failure.

Before we dive into the motivation to ignore iPads, we need to understand how analysts in general and companies in particular group products into comparable piles. This process of grouping is called categorization. It should be distinguished from segmentation which groups buyers in a market. Categorization is essential for competitive analysis and measurement of the performance of a product (relative to other products).

Categorization is a challenging problem for most companies. To illustrate why, consider four possible methods for categorizing products:

1. By product attributes. The assumption here is that products with similar attributes compete in the same market. As an example hard disk drives might be categorized by dimensions of the cases and sub-categorized by capacity and perhaps transfer speeds.
2. By user attributes. This method is similar to segmentation where products are grouped by the type of buyer. Magazine titles might be properly categorized by the age and gender of the readers. This can also cover geographic data.
3. By user behavior. This method, sometimes called psychographics is a more advanced method than demographics where user personality, values, attitudes, interests or lifestyles are measured. You might have seen examples where users are defined with a "prototype" person and the products are attached to this prototype. This is a common way to categorize mobile phones (Nokia is a known leader in this method).
4. By modes of consumption. Determine what products are hired to do the same job. In this case you have to have real insight into what people actually do with their products and try to look broadly at what they substitute. The classic example of this is to understand that a power drill competes with products what make holes in walls not just with other drills.

When reading this list, it's easy to see that it's ranked in order of difficulty. The easiest thing to do is group according to things you can measure easily. Products are easier to measure than demographics which are easer to measure than psychographics and that's easier to capture than observed behavior.

Consider how you would structure a study to capture this data.

1. In the first case, you need an analyst to collect products (or just their descriptions) and record values in a spreadsheet.
2. In the second case, users need to be surveyed for basic data. This is hard because you have to find users and then you have to get a statistically significant unbiased sample.
3. In the psychographic study you need to ask a lot more questions about lifestyle in your survey and hope that the subject answers honestly. You still need a large sample.
4. In the case of consumption analysis you need to observe a subject use a product for a prolonged period of time in the usual context where the product is used and be able to interject questions when certain behavior is encountered. The observation of one person can take one research person-day per subject. To get statistically significant data requires literally man-years of work.

Now it should be clear why an analyst will only categorize according to product attributes. It's not only economically and temporally expensive to perform research on methods 2 to 4 but it also requires interpretation and insight into study development.

A few companies go beyond buying analyst market data and do their own research. As far as I know user studies are more commonly done by consumer products companies. But it's extremely rare to see this research done by low-margin technology companies. They don't have the budgets or skill sets to do any research.

However, in my experience, nobody performs the fourth, most difficult, form of categorization.

The result is that good, smart managers trained to always base their decisions on hard facts, pick up these lowest-deonominator analyst reports to help decide which products to develop. And it should be obvious why they are surprised when products that did not show up on any market study suddenly take all their profits away.

Thanks Gartner.

On the iPhone, the firm raised their production forecasts from 14 million units to 18+ million, aided by easing constraints of display panels. Checks show consistent shortage of iPhone 4 inventory at Apple stores and there continues to be a three-week shipping delay from Apple's online store, the firm notes. As a result the firm has increased confidence in its 4QFY10 iPhone unit estimate of 11.6 million, which is up 39% sequentially.

On the iPad, the firm's build forecasts were revised up from 6 million to 7 million, which compares to their iPad shipments estimate of 4.75 million. The firm believes [there] is upside to the Q4 estimates and CY10 estimates of 13.4 million units, given the strong demand and anticipated production ramp heading into the back-to school and holiday seasons, as well as the high level of interest from business customers as expressed by AT&T.

via StreetInsider.com - All Apple (AAPL) Products Lines are Humming Along - Analyst.

These sound reasonable and credible. Note that production forecasts don't translate into sales forecasts as there is inventory, and some of that inventory will be held by Apple and some by the manufacturer.

My Q4 estimate sits at 12.1 million iPhones and 4 million iPads.

Shipping delays have shrunk from 5-to-7 business days to 3-to-5 days which is great because now Apple will run more ads.

Apple - iPad - View photos and images of iPad.

But seriously, how long has it been? Five months with no iPads on hand? Now if only they had enough iPhone 4's.

Here is the situation in Korea:

SEOUL (AFP)--South Korea's KT Corp. (KT) said tens of thousands of people jammed its website Wednesday, as it began to take pre-orders for Apple Inc.'s (AAPL) iPhone 4.

KT Corp., the country's sole distributor for the gadget, said in just four hours more than 70,000 people put their names down for the popular smartphone after its online shop opened.

"Our online shop server was jammed instantly as too many clients placed orders simultaneously," KT spokesman Jin Byung-kwon said.

"So far, the number of orders for the iPhone 4 exceeds well beyond that of the iPhone 3GS," he said.

See also: Apple's supply problem

The research and development budget used to be 9 percent of revenue, Mr. House told me; now it was closer to 2 percent. “In the personal computer group, it is seven-tenths of 1 percent,” he added. “That’s why H.P. had no response to the iPad.”

via Talking Business - The Real Reason for Ousting H.P.’s Chief - NYTimes.com.

HP, by sales, the largest technology company in the world, can't be bothered to spend money on R&D for its PC division. This is a surprise?  Since when does any PC company spend any money on R&D? Put another way, even if they did spend the money, what would they be researching and developing? PCs are commodity products where any improvements would neither be valued nor used.  On the measures of performance that everyone has for the PC, the product has been more than good enough for a decade.

They did not have a response to the iPad because they did not think anybody needed an iPad.  And that is mostly because Microsoft did not think anybody needed an iPad.

None of this has anything to do with Mr. Hurd. His peer group all agree on these fundamentals.

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.

From Apple's FQ3 press release:

"Apple sold 3.47 million Macs during the quarter, representing a new quarterly record and a 33 percent unit increase over the year-ago quarter. The Company sold 8.4 million iPhones in the quarter, representing 61 percent unit growth over the year-ago quarter. Apple sold 9.41 million iPods during the quarter, representing an eight percent unit decline from the year-ago quarter. The Company began selling iPads during the quarter, with total sales of 3.27 million."

My unit forecast.

In millions of units.

Product Asymco Actual Diff Error
iPhone 8.500 8.398 0.102 1.2%
Mac 3.462 3.472 -0.010 -0.3%
iPad 3.300 3.270 0.030 0.9%
iPod 9.398 9.406 -0.008 -0.1%

Rankings of various analyst forecasts are at :
Deagol's blog.

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.

Apple Sells Three Million iPads in 80 Days - Yahoo! Finance.

After 1 2 3 million units sold in 28 60 80 days, it’s time to review the analysts’ predictions:

First year iPad unit forecasts (sourced from TMO Finance Board)

• Brian Marshall, Broadpoint AmTech 7.0
• David Bailey, Goldman Sachs 6.2
• Kathryn Huberty, Morgan Stanley 6.0
• Shaw Wu, Kauffman Bros. 5.0
• Mike Abramsky, RBC Capital Markets 5.0
• Gene Munster, Piper Jaffray 3.5
• Ben Reitzes, Barclays Capital 2.9
• Keith Bachman, BMO Capital 2.5
• Jeff Fidacaro, Susquehanna 2.1
• Chris Whitmore, Deutsche Bank 2.0
• Scott Craig, Merrill Lynch 1.2
• Peter Misek, Canaccord Adams 1.2
• Doug Reid, Thomas Weisel 1.1
• Yair Reiner, Oppenheimer 1.1

Looks like at least half two thirds three quarters of these guys have already blown it.

For the record, in January I forecast 6 million units for calendar 2010 (and 10 million in first year).  It looks like I'll be facing the iPad dunce corner as well.

See: Analysts predict iPad sales Analysts predict iPad sales (part II)