Will iPad Sales Normalize In 2024? Why This Apple Category Is In 'Structural Decline'

Apple Inc. AAPL has had a rough month after initial iPhone 14 demand appears to have fallen short of expectations.

On Monday, Bank of America analyst Wamsi Mohan said investors shouldn't expect iPad sales to save the slumping stock.

Near-Term Headwinds: Mohan sent Apple shares tumbling when he downgraded the stock from Buy to Neutral and cut his price target from $185 to $160 on Sept. 29. In the downgrade note, Mohan said he expects "weaker consumer demand" will prompt analysts to cut their Apple earnings estimates in coming quarters.

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On Monday, Mohan turned his focus to iPad sales, which he says benefited from a COVID-19 pandemic boom in 2020 and 2021. In fact, he estimates Apple has sold an excess of around 41.8 million iPads since the beginning of 2020 thanks in large part to demand from remote work and study. Mohan says about 25% of those incremental sales are linked to sooner-than-expected replacements of older models, which he says will lead to year-over-year declines in iPad sales in 2022 and 2023.

Tablet Challenges: Mohan said iPads have been gaining market share in the tablet category since 2017 but will likely see limited installed base growth moving forward.

"Although the device continues to attract a high proportion of new users (~50% of purchasers in any qtr. even pre-pandemic were new to the device), replacement rates remain muted. We see this as a function of the category being in structural decline," he said.

Related Link: Why Apple Shares Are Sliding Today

Mohan is now calling for iPad unit sales to drop from 65.5 million in 2021 to 57.3 million in 2022 and just 44.9 million in 2023.

Benzinga's Take: It's definitely not good news for Apple investors to see iPad sales trending lower, but it isn't necessarily the end of the world either. Tablet sales may start to normalize in 2024 and beyond, and Apple's long-term bull thesis is more closely tied to iPhone and Services sales than iPad sales.