Apple: Why the iPad Is More Important Than the iPhone

October 25, 2013 Leave a comment

Apple: Why the iPad Is More Important Than the iPhone

By Mark Glassman October 15, 2013

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When Apple (AAPL) unveils its latest iPad and iPad mini later this month, the Internet will not explode, as it did when the company launched new iPhones last month. That’s fair enough. The iPhone is Apple’s benchmark product. It accounts for half the company’s revenue. It commands more news coverage than any other mobile device. It’s Hannah’s phone on Girls. Investors, however, should not ignore the iPad. The device is a critical piece of Apple’s business, and the company’s fortunes hinge largely on the success of the latest models.As a business unit, the iPad is huge. The device accounted for $31 billion in revenue in Apple’s most recent fiscal year. That’s more than the annual sales of 84 percent of members of the Standard & Poor’s 500-stock index.

Of course, Apple is the world’s largest company, so it takes a high-revenue product to make an impact on its income statement. In fiscal 2012, iPad revenue made up about 20 percent of the company’s total sales.

On a quarterly basis, the iPad’s importance has varied with the product cycle, but the device has never accounted for less than 11 percent of Apple’s total sales.

Here’s where investors should start paying attention. By at least one measure, as the iPad goes, so goes Apple stock. Quarterly iPad revenue has a 68 percent correlation with Apple’s share price. That’s higher than the stock’s correlations to iPhone revenue (62 percent) or Mac revenue (40 percent).

If we consider unit sales rather than revenue, the iPhone becomes a better predictor of Apple’s share price than the iPad, but the difference is not enormous: Unit sales of the iPhone are 77 percent correlated with the stock; iPad unit sales are 68 percent correlated.

Given the strength of those relationships, equities analysts appear to be bullish on the iPad. Of 66 analysts who cover Apple, 47 rate its stock a buy.

Filed under TMT Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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