With sales sputtering, Apple's iPad looks to IBM alliance

A display shows a new Apple iPad Air tablet inside the Apple Store on New York's Fifth Avenue,...

A display shows a new Apple iPad Air tablet inside the Apple Store on New York's Fifth Avenue, after the new iPad went on sale, Nov. 1, 2013. REUTERS/Mike Segar

Christina Farr, REUTERS

, Last Updated: 10:52 AM ET

SAN FRANCISCO - Apple Inc's iPad is losing steam just four years after its release, but an alliance with International Business Machines Corp could rejuvenate a flagging product by entering into a largely untapped corporate market.

Apple shipped 13.2 million iPads in the June quarter, 8% fewer than a year earlier and lagging Wall Street's forecast for 14 million or more. Sales of the device, which accounted for 15% of revenue, fell short of Wall Street's expectations for the second quarter in a row.

Apple helped create the tablet market in 2010 with its first iPad. But growth has plummeted from 2012, as larger phones became more popular and people delayed replacing their tablets. And it is ceding market to mostly cheaper Android offerings from Samsung Electronics Co Ltd and Chinese manufacturers using Google Inc software.

Chief executive officer Tim Cook described iPad sales as "very bifurcated" - they continue to grow at 50% or above in emerging markets such as the Middle East and China, but in developed countries like the United States, the "market is weaker."

Research firm IDC lowered its forecast for 2014 worldwide tablet demand growth to 12.1% - a fraction of the 51.8% expansion of 2013. The first quarter of this year also saw Apple's market share slide to 32.5%, from 40% a year earlier.

"The tablet market globally has really hit a wall," said Cantor Fitzgerald analyst Brian White.

Another threat to iPad sales may come from within. Apple is expected to introduce a larger 5.5-inch (14.0-cm) iPhone in the fall. At those dimensions, the iPhone would begin closing in on the 7.8-inch (19.8-cm) iPad mini.

"You have the negative impact of the larger screen iPhone and what that would do to iPad mini," said Piper Jaffray analyst Gene Munster. "You're going to get a larger screen iPhone before you'll get contributions from the IBM partnership."

Investors hope the partnership with IBM announced this month will help bolster sales in the largest global enterprises, which could provide a boon to U.S. tablet sales.

Cook cited IDC figures showing that iPad penetration among businesses stood at about 20%, versus 60% for notebook computers.

Analysts say the alliance, in which the two companies will work on a suite of secure business apps, may take years to show up in the bottom line. But they see potential in marrying IBM's business-software expertise with Apple's hardware and services.

"I do believe Apple can leverage IBM's channel," said White.

Growth areas include the retail sector, where employees may increasingly use tablets for inventory management, as well as financial services, and transportation, he said. Other promising sectors included education and healthcare.

"We see the importance of the customer ... and both feel that mobile and enterprise is just an enormous opportunity," Cook, a former IBM executive himself, said on a conference call. "And we're not competing with each other so a partnership in that case is particularly great."


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