One announcement from WWDC provided much credibility to the theory that the iPad upgrade cycle will top out around five years. iOS 10 will not be compatible with the original iPad, iPad 2, iPad 3, and iPad mini, iPad models that are six, five, four, and four years old, respectively. This means there will be approximately 65M iPads that will not get the latest iOS release. That is a very significant number of iPads. While it's wrong to conclude owners of those iPad models will rush out and buy a new iPad as a result of not getting iOS 10, it does provide a few clues as to how Apple is thinking about an iPad's useful life before turning into an inferior experience: between four and five years.

Less Severe iPad Mini Headwinds. With the iPad mini contributing to 70% of the iPad's overall sales decline in recent years, there is evidence that the period of massive iPad mini sales declines is coming to an end. Given current iPad mini sales, there is simply less room for the device to register the same kind of sale declines seen in the past. Accordingly, overall iPad sales will benefit from no longer having a massive iPad mini sales headwind. For example, in 3Q16, the iPad mini likely represented less than 20% of total quarterly iPad sales. While I remain confident that we have seen Peak iPad Mini, I do not expect iPad mini sales to go to zero. The device represents one of the low-cost entry-level devices for the iOS ecosystem, which will appeal to millions of consumers each year.

Stronger iPad Lineup. The 9.7-inch and 12.9-inch iPad Pro and accompanying Apple Pencil and Smart Keyboard accessories represent the iPad's future. One consequence of iPhones becoming larger and MacBooks becoming smaller was that the old iPad line felt stale and out of place. Apple needed to shift its iPad strategy to the high-end, as detailed in my article, "Finding iPad's Future," from August 2015. This would be the opposite of the iPad strategy kicked off with the iPad mini at the end of 2012. Not only do the Pros serve as the first genuine iPads worth upgrading to for existing 9.7-inch iPad users, but they also give Apple a much better story to tell in terms of marketing. Apple's latest iPad commercial demonstrates this as Apple is explaining the iPad in a whole new way. The iPad is no longer the product that exists between a smartphone and laptop. Instead, the iPad is a computer.

iPad Sales Stabilization Is Near

As a very early sign that all of these positive developments are coming together, Apple just reported the best quarter for iPad unit sales growth in 10 quarters, highlighted in Exhibit 5. The 9.7-inch iPad Pro launch certainly played its role. While sales are still declining, on a revenue basis, the iPad business registered its first year-over-year increase in 10 quarters. This is the clearest sign in years that iPad is approaching stabilization.

Exhibit 5: iPad Unit Sales Growth