A Few iPad Shortcomings That Could Hit Apple's Bottom Line

by Tony D'Altorio

A Few iPad Shortcomings That Could Hit Apple's Bottom Line

by Tony Daltorio, Investment U Research

Friday, April 2, 2010

Step aside Easter eggs and chocolate bunnies.

The Apple (NASDAQ: AAPL) iPad hits the market this weekend. And it's generating a lot of excitement... perhaps even more so than sugar-coated marshmallows shaped like baby chicks. Some estimates even put pre-orders alone in the hundreds of thousands.

However many fly off the shelves on Saturday, its launch marks the birth of a new computing category. With that said, we might not know these mid-sized devices' real potential for months if not years.

Even Wall Street doesn't have a clear idea on the subject. When predicting how many of the 9.7-inch screen tablets Apple will sell, those "experts" have guessed everything from 1 million to 10 million.

Not very helpful. But while investors clearly can't rely on them in this case, there is information out there that could prove more useful...

Sales Constraints

Several factors could constrain iPad sales, at least in the early days.

  • First of all, manufacturing issues at some of Apple's suppliers prompted the company to limit pre-orders to two per customer, even for businesses.
  • Also, consider that the models out this weekend only feature WiFi. Many people may very well want to wait for upcoming versions that include 3G cellular service. And still others could hold out for delayed accessories such as physical keyboards.

Even in the longer run, Apple faces competition concerns. While the iPhone debuted well before anybody else had the idea, the iPad will have to fight for its place among similar models likely to hit the market this year.

That includes the HP Slate from Hewlett Packard (NYSE: HPQ). Touted by Steve Ballmer of Microsoft (NASDAQ: MSFT), the upcoming Slate runs the touch-enabled Windows 7 operating system.

It also offers what HP calls "complete internet." That direct jab refers to iPad's inability to run Flash software from Adobe Systems (NASDAQ: ADBE). For some reason, Apple CEO Steve Jobs and his team directly decided not to include that capability. And they might come to regret that before long, especially considering that almost all the competition will support the program.

To put it into perspective, Flash is already installed on 90% of computers. And it is used to deliver 75% of online videos worldwide. So the iPad might suffer somewhat by not featuring it.

Check Out iPad's Competition

The iPad also has to hold up against devices using Android, the free operating system from Google (NASDAQ: GOOG).

For example, Marvell Technology (NASDAQ: MRVL) recently showed off its new iWonder. Made by Taiwan's Foxconn, the Android-based tablet has a 10.1-inch screen and should sell for about $100... a fraction of the $500 the cheapest iPad costs.

Taiwanese companies in general could prove Apple's biggest threat in the iPad market. Acer, Asustek, BenQ, MSI and Gigabyte all have models expected out later this year.

And while the iPad doesn't include certain features like a camera, the competition is making sure to include them.

Martyn Humphries, a VP at Broadcom (NASDAQ: BRCM) said: "Tablet makers are offering services such as Voice-over Internet Protocol, video conferencing, DLNA [Digital Living Network Alliance] and home automation."

Even AT&T (NYSE: T), the exclusive carrier for the iPhone and the iPad in the U.S., has decided to hedge its bet. It recently announced a network launch this year for the OpenTablet. Made by OpenPeak, it runs on the Atom processor from Intel (NASDAQ: INTC) and features dual-camera capability.

Not Quite So Padded Future

With all of the competitors lined up, the iPad's success is up for debate.

Also important to note, the iPad seems much more like the iPod Touch than the iPhone. Consumers only gradually came to see the iPod Touch as a mobile computer with touch sensitivity and other features that made it close to ideal for playing games.

Once they did, available programs rapidly followed. But it took a little while to get there.

The iPad could expand the same way. According to Yair Reiner of Oppenheimer, "Apple is breaking ground on a new type of use-case. It will take some time for consumers to understand what the benefits of the device are."

By the time they do, the competition may have already gained too much.

Good investing,

Tony Daltorio

comments powered by Disqus