Apple ( AAPL ) reported a strong Q2 allaying concerns that supply constraints caused by the Japan quake. It reported higher than expected iPhone sales which boosted the company's overall revenues and profits. However, iPad sales declined from 7.3 million in Q1 of fiscal 2011 to 4.7 million in Q2 due to complications with planning and product transitions, according to management. We see this is a short-term non-issue and forecast healthy growth for the iPad sales, which contend with tablets from Samsung, Motorola Mobility ( MMI ), Research in Motion ( RIMM ) and Dell ( DELL ).
Demand Outlook is Strong
Apple maintains that demand for the iPad 2 is staggering and that it has a heavy backlog. It expects sales to almost double next quarter as manufacturing ramps up.
While we anticipate total iPad sales will cross 54 million by the end of our forecast period, Trefis members predict the sales will reach close to 62 million. The member estimates have a very small impact on Apple's stock, since the iPad constitutes around 7% of Apple's stock value by our estimates.
Competition from Xoom, Galaxy Persists, But iPad Still Rules
Apple's iPad continues to face competition from Samsung's Galaxy and Motorola Mobility's Xoom tablets. We discussed in our earlier note, Xoom Could Take a Bite Out of iPad's Profitability , how Xoom is offering competitive features like 3G network and a higher memory at competitive prices compared to the iPad. But these two companies still form a small fraction of the larger tablet market, which is mainly dominated by the iPad. According to a recent Nielsen survey, iPad owns around 82% of the tablet market followed by Samsung with 4%, Dell with 3% and Motorola with 2%.
Even in terms of customer satisfaction iPad seems to be doing better. According to ITG Investment Research, Samsung Galaxy Tab had a return rate of 16%, while iPad return rate since its debut has been 2%.
We currently have a Trefis price estimate of $420 for Apple's stock , about 28% above the current market price.