iPhone 6 May Eat Into Apple’s iPad Sales

iPhone 6 May Eat Into Apple’s iPad Sales
JESHOOTS / Pixabay

It’s been awhile since we heard analysts talking about the phablet-sized iPhone 6 cannibalizing the iPad, but Business Insider‘s Henry Blodget has reminded us of this topic. It’s something Piper Jaffray analyst Gene Munster agrees with. But while cannibalization is usually seen as a bad thing, in this case, Blodget things it’s a good thing.

iPad sales decline

Last night when Apple Inc. (NASDAQ:AAPL) reported the results from its June quarter, iPad sales were pretty weak. They declined by 9% to 13.3 million units. That’s quite a bit short of consensus estimates at 14.4 million units. June is typically a seasonally slow quarter as the school year comes to an end, but after spiking and setting a new record for iPad sales late last year, the trend has fallen off much more quickly than in previous years, according to data put together by Quartz.

And now we have expectations that Apple will launch not only a larger 4.7-inch iPhone 6 this year but also possibly a phablet-sized model that has a display of 5.5 inches. So does this mean death to the iPad? Probably not entirely, but it could take a chunk out of sales of the tablet.

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Munster cuts iPad estimates

Munster has actually reduced his estimates for the iPad for next year, slashing it from 78 million to 74 million because of expectations for a 5.5-inch iPhone. However, he agrees with Blodget that this is a good thing. He thinks the 5.5-inch iPhone will have an average selling price of about $700, which is about what the Galaxy Note sells for. This is an about-face from his view as recently as April of this year when he said that the iPhone 6 couldn’t cannibalize iPad Mini sales.

He expects gross margins on the phablet to be around 45%. Comparing those with the iPad Mini’s numbers, it’s clear why he thinks it’s a good thing for the 5.5-inch iPhone to cannibalize the iPad Mini, which as gross margins of around 30% and an average selling price of about $400.

So if sales of the iPhone 6 steal about 4 million iPad sales, then Apple sees about $1.2 billion in extra sales and gross profits of $780 million. In other words, Apple doesn’t really have to worry if sales of the iPad are starting to fall off, as long as it has a phablet-sized iPhone to take over.

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