Apple Inc. (AAPL): First High-End Smartphone Saturation, Now Tablets

Apple iPad iPad Air
FirmBee / Pixabay

Apple Inc. (NASDAQ:AAPL)’s bread and butter have been the iPhone and iPad for so long that it can be difficult to look past them to envision the company’s future. In fact, some have become hyper-focused on new product categories like the rumored iTV or iWatch, and it’s easy to see why, especially if Citi’s projections regarding tablet growth are accurate. After all, analysts have been saying time and again that Apple’s in trouble in the smartphone market because of saturation at the high end.

So if the company’s iPads are also in trouble, it may spell doom if it doesn’t come up with another hit product, and fast.

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Apple to see trouble in tablets

The Citi team is projecting that tablets will grow by about 20% or maybe a bit more this year. However, they think it will peak and begin dipping below 20% by the first quarter of next year. This is a major decline from early last year when Apple Inc. (NASDAQ:AAPL) enjoyed its chunk of the more than 140% growth of tablets early last year.

Of course deceleration is going to happen eventually, no matter what kind of device we’re talking about. Citi analysts have basically just decided that the time for tablets is on the way out because of saturation—particularly in Apple Inc. (NASDAQ:AAPL)’s key U.S. market.

Apple to see a domino effect

The Citi team said because of device exhaustion, product life cycles are getting shorter. Meanwhile, Apple Inc. (NASDAQ:AAPL) is also hurting from smartphone saturation in developed markets. As a result, average selling prices are expected to fall, and gross margins are at risk. Investors closely watch both of those metrics every time Apple releases an earnings report.

The analysts also note that it’s getting difficult to innovate in the area of smartphones, so it’s necessary to look elsewhere for growth. They’re predicting, as others have, that connected or smart devices are going to be the next area of growth and focus for technology companies. The only question now is whether Apple Inc. (NASDAQ:AAPL) will get on board, and if so, how quickly.