This Article is From Mar 29, 2010

Will Apple's iPad live up to the hype?

Will Apple's iPad live up to the hype?
San Francisco: When the Apple iPad goes on sale on Saturday, most of the major questions surrounding the device will have been answered, save for one: Can it live up to the hype?

Apple fans have breathlessly awaited Apple's entry into the tablet computer market. Since the company unveiled the iPad in late January, investors have jumped on the bandwagon, too, running up Apple's stock more than 10 percent.

Part of that rise can be attributed to the steady rise in sales of the iPhone and the company's Mac computers. But much of it clearly has to do with tablet fever. On the day this month when Apple made the completely unsurprising announcement that the iPad would go on sale on April 3, the stock jumped nearly 4 percent.

Expectations are clearly high. Now the iPad has to meet them.

Apple has given no public indication of what kind of sales it expects, or what may constitute success. But at the iPad introduction in January, Steve Jobs, Apple's chief executive, implicitly set a lofty standard. He said the iPad would offer an experience superior to that of netbooks, a rapidly growing category of inexpensive and lightweight laptops that accounted for $11 billion in global sales last year.

He also said the 75 million people who own iPhones and iPod Touches already knew how to use the iPad, which uses the same operating system and touch-screen interface.

But analysts and investors are searching for their own ways to judge the iPad over the short and long term. Their projections vary, but many Apple analysts seem to think the company will sell around a million iPads by the end of its quarter in June, and around 5 million by the end of 2010.

Analysts acknowledge that a certain amount of guesswork goes into those projections, in part because it is not yet clear what kinds of applications and content will be available for the iPad from media companies and outside developers.

"The reality for the iPad is going to be determined by what apps are made for it," said Gene Munster, an analyst at Piper Jaffray. "People are debating the use case for it, and the use case will be largely determined by the apps. A lot of people are still on the fence whether this is a legitimate market or not."

There are other variables at work. For example, it appears the iPad will initially be available only in Apple's stores and at Best Buy. How quickly will Apple begin selling it through other retailers, and in countries other than the 10 it named this year?

Will Apple allow American wireless carriers other than AT&T, like Verizon, to offer data plans for the 3G version of the device? And how quickly might Apple lower the iPad's price, or introduce models with new features like a built-in camera?

In considering how the iPad may affect Apple, analysts must also navigate the fuzzy topic known as cannibalization. Consumers who spend $499 for the cheapest iPad model might be buying it in lieu of a $999 MacBook laptop or, more likely, a $199 iPod Touch.

Many analysts are looking to historical precedent to gauge the iPad's prospects in the market. Back in 2001, iPod sales started slowly; Apple sold only 372,000 of them in its first year, then around a million in the second, after the opening of the iTunes Store.

After the iPhone's introduction in 2007, which inspired a similar media frenzy, Apple sold 1.4 million handsets in its first two quarters, and then 6.1 million during its entire first year.

But the iPhone may be a poor example: People were already comfortable buying cell phones. Few people have ever owned a tablet computer. The iPad is something almost entirely new to most consumers, more akin to say, the Kindle from Amazon.com or the Apple TV set-top box. Those devices each sold fewer than a million units in their first year.

Achieving the mass-market penetration - and cultural impact - of the iPod and iPhone is ultimately Apple's biggest challenge with the iPad. "They are going to need to target mainstream users who might otherwise decide to purchase an e-book reader or a netbook," said Michael Abramsky, an analyst at RBC Capital Markets. "If they are successful in starting to convince those kinds of folks, and getting beyond the early adopters who will line up for anything, then it has the potential to blossom."

But even in those best-case situations, the iPad most likely will not change Apple's overall financial picture anytime soon. A.M. Sacconaghi Jr., an analyst at Sanford C. Bernstein & Co., predicts the iPad could contribute about 28 cents a share to Apple's bottom line in its first full year of sales. The iPhone, by contrast, is responsible for about $8 of earnings a share.

"It's going to be pretty small from a financial impact initially, but the range of ultimate outcomes for the iPad is pretty big," Sacconaghi said.

Investors are also trying to keep their expectations grounded. Erick Maronak, chief investment officer for the $1.2 billion Victory Large Cap Growth Fund, which counts Apple as its biggest holding, said he was looking forward to the iPad - but still banking on the iPhone.

The iPad "is yet another example of how the innovation with Apple continues, and that they have not grown complacent," Maronak said. "But the much bigger driver is that this is going to be a pretty big year for the iPhone."

All the iPad and iPhone optimism leaves many analysts and investors wondering what, exactly, disappointment might look like for Apple. If Apple sells only half a million iPads during the next two months, or less than 2 million by the end of September, it could conceivably damage the company's stellar reputation with Wall Street - and Jobs' air of infallibility in selecting and entering new markets.

"There's always a risk," said Charles Wolf, an analyst at Needham & Co., who points to past Apple failures like the Mac Cube and Apple TV, but nonetheless believes the iPad will sell briskly.

If the iPad does fail to sell, "it could impact the stock," Wolf said. "But I doubt it would be the end of the world."
.