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For iPad sales, nowhere left to go but lower?

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Latest MoneyWatch headlines 01:08

When Apple’s (AAPL) late Chief Executive Steve Jobs unveiled the iPad in 2010, he called it “a truly magical and revolutionary product.” Though the public snapped up the tablet computer for a while, demand has flat-lined in recent years. Shipments have fallen for 12 straight quarters with no rebound in sight -- even with Tuesday’s launch of a new lineup, which features more power and lower prices.

One reason for the iPad’s poor sales is that consumers see no reason to upgrade their existing devices. Plus, improvements in smartphone technology, such as larger screens, have made tablets increasingly irrelevant. Researcher Gartner expects shipments to drop an average of 1 percent annually from 2017 to 2020 as the market reaches a saturation point.

“When the iPad was rolled out, the hope or belief was that consumers would refresh or buy another iPad every two to three years,” said Angelo Zino, an equity analyst with CFRA who has a “strong buy” rating on Apple’s stock. “The problem is that these devices are so good, consumers don’t need a replacement. They can hold onto an iPad for five or six years, and they work perfectly fine.”

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Declining iPad sales haven’t spooked Apple investors. Shares of the Cupertino, California, company have surged more than 20 percent since January, outperforming rivals such as Alphabet’s Google (GOOG), which rose over 7 percent, and Microsoft (MSFT), which jumped about 4 percent. Apple now sports a market valuation of more than $735 billion and is the best performer in the Dow Jones industrial average. The company didn’t respond to a request to comment for this story.

Apple announced on Tuesday a $70 price cut for its newest iPad, which has dropped “Air” from its name. Apple has given the $329 device a 9.7-inch screen, a brighter display, a faster chip along with 32 GB of storage, and operates via Wi-Fi. A $459 version that includes a cellular connection will also be available. The devices will be available for order starting Friday.

“They are doing the right thing by keeping it going,” said Gene Munster, managing partner at Loop Ventures and a former technology analyst. “Even though it’s declining, it’s still a nicely profitable business.”

Munster expects Apple to generate about $17 billion in iPad revenue in 2017, equal to about 7 percent of Wall Street’s consensus forecast for 2017 revenue of $228 billion, generating a profit of $5 billion. iPad revenue will decline over the next three years and will face further pressures when virtual reality gear becomes more widely used, according to Munster.

“I don’t know where the iPad fits into that world, but I think for the next five years there is definitely a place for [it],” he said.

While Apple still controls about 25 percent of the tablet market, researcher IDC estimates that shipments dropped 20 percent on a year-over-year basis in the final three months of 2016. Apple tried to reignite sales with models, such as a larger iPad Pro introduced in 2015 that was supposed to be a flagship product. A year later, Apple debuted a smaller iPad Pro. Both models, however, flopped with consumers.

The iPhone is by far Apple’s most important product, accounting for more than 60 percent of its overall revenue. 

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