Can Apple's iPad spur economic recovery?

Sales of Apple's iPad are strong. If they skyrocket, they may herald a faster-than-expected recovery.

By , Staff writer

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    A customer tries an iPad in a San Francisco Apple store, as seen in this undated photo. Apple’s new tablet computer is certainly off to a strong start: 300,000 iPads sold on its first day (April 3), 500,000 in its first week. Can its strong sales spur a faster economic recovery?
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The gadget is billed as a breakthrough. Born in the deepest recession since the Great Depression, it becomes a must-have. Americans snap up so many of them that suppliers run short and a high-tech boom is born.

That was the IBM PC in 1983. The boxy personal computer became an office staple, a household buzzword, and an icon of how a battered economy reinvents itself and moves powerfully forward.

Will Apple’s iPad do the same for today’s economy?

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The snazzy tablet computer is already getting accolades and, so far, flying off the shelves. Usually, high-tech sales and the larger economy are loosely related. People buy fewer gadgets when times are tough, but breakthrough products transcend their economic times and keep on selling. On rare occasions, a boom in the product signals great times for the economy.

For that to happen with the iPad, both it and the economy will have to outperform expectations by significant margins.

“For many consumers, the iPad is a ray of sunshine on a dark day,” says Sarah Rotman Epps, an analyst for Forrester Research in Cambridge, Mass. But “the iPad is a specialized device. It’s not a phone. It’s not a laptop. There’s a learning curve for consumers to understand why they’ll need to have it.”

Apple’s new tablet computer is certainly off to a strong start: 300,000 iPads sold on its first day (April 3), 500,000 in its first week. One of them helped Norwegian Prime Minister Jens Stoltenberg stay in contact with his government on April 19 as volcanic ash from Iceland kept him from flying back home from the United States.

Apple itself is booming, announcing record profits and revenues for the last quarter of 2009 and following it up with strong results in the first quarter of this year, mostly on sales of its popular Mac personal computers (up 33 percent from last year’s second-quarter results) and -iPhones (up 131 percent).

If analysts are right, the iPad should sell somewhere around 5 million units this year, a forecast that is robust but certainly not chart-topping. An InfoWorld survey found that about 6 percent of consumers planned to buy one within a year, a rate that would suggest sales of 7 million.

More important is how the gadget performs over three years. Forrester expects the iPad to outperform the iPod, which sold 10 million units in its first three years. But it won’t reach the iPhone’s 42 million sales in its first three-year stint.

That’s a forecast not unlike the consensus outlook for the economy as a whole: better than the shallow recovery of the last recession, but not as strong as the comeback from the 1981-82 recession.

Can machine or economy outperform expectations?

“A breakthrough product can do well, even in difficult economic environments,” says Shawn DuBravac, chief economist and director of research at the Consumer Electronics Association in Arlington, Va. “When Apple launched the iPod, we were going through a similar economic period.”

Likewise, the economy can thrive without robust sales of consumer technology. They’re just not big enough to nudge the economy’s needle. For example, worldwide spending on computer hardware this year will amount to only about 10 percent of the $3.4 trillion spent on information technology, according to Gartner Inc., an information technology research and advisory company based in Stamford, Conn.
On rare occasions, however, the economy and a high-tech product may travel on parallel growth tracks.

That’s how the PC became the icon for the recovery from the 1981-82 recession, which at the time was the longest and deepest economic downturn since the Great Depression. In early 1983, when Time magazine famously named the personal computer as “Machine of the Year,” the Apple II was still the face of personal computing, with about one-quarter of the worldwide market. But the more powerful PC was catching up fast. By midyear, sales were so strong that IBM couldn’t make the machines fast enough. Some dealers had to wait for weeks to get shipments.

The boom caught IBM and everyone else by surprise. The following year, IBM was on top with one-third of the market. Likewise, after four straight quarters of decline, from 1981 to 1982, US economic growth accelerated during the next three quarters.

“It doesn’t surprise me too much that we’re seeing these products come out in these difficult economic environments,” says Mr. DuBravac of the Consumer Electronics Association. In hard times, individuals lose jobs and strike out as entrepreneurs. Companies seek to bolster revenues by creating new products.

If the iPad fizzles, maybe the iPhone or some other company’s smart phone will come to the economy’s rescue. Perhaps it will be an electric car or some other energy-saving device. Few people count out Apple, however, on delivering breakthroughs.

“Apple is very good at selling things that people want to buy,” says Ms. Rotman Epps of Forrester.

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