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Cook: iPad sales actually better than expected, figures are misleading

updated 07:53 pm EDT, Wed April 23, 2014

Blames channel inventory imbalance for most of year-over-year decline

On paper, the sales of the iPad in Apple's fiscal second quarter look bad: a 16 percent drop from the year-ago quarter, rumors of which already had pundits and business sites wondering if the iPad had peaked. Statistics, however, can sometimes be misleading -- and in an unusually proactive explanation, Apple CEO Tim Cook took time at the start of his conference call with analysts to explain that changes in channel inventory accounted for most of the "lower" sales.



Apple reported sales of 16.4 million iPads in the March quarter, significantly down from the 18 million it had sold in 2013's second fiscal quarter. Cook, however, said that at the time Apple was fulfilling a backlog of iPad orders and thus sold a lot of units to "the channel" -- resellers and distributors -- which pumped up sales figures. This year, sell-in inventory (to partners) went way down, while sales remained basically the same, making it look like Apple had sold far fewer iPads than it did.

Sell-through to end users -- a figure that Apple is alone in the industry in reporting -- was actually 17.5 million units, down about three percent from the year-ago quarter. The difference means that iPad sales were actually at the high end of what Apple was expecting, rather than "a miss" as some analysts had expected. The year-ago quarter had seen shortages of the recently-introduced iPad mini and fourth-generation iPad, most of which were compensated for in the March quarter. This year, Apple was able to achieve a better demand-supply balance, revealing more unskewed sales.

For those who paid close attention, Cook was actually illustrating with Apple's own statistics the "error of assumption" that comes from most analysts who base marketshare on "shipments" (sometimes called "sell-in") versus actual sales to end users ("sell-through") and that a very significant discrepancy can exist between those two figures. Sadly, the analogy was probably too subtle for most Wall Street analysts.

Cook went on to mention the iPad's performance as the dominant tablet in the industry several more times during the call, including notes that it had achieved a 95 percent share of all education tablet purchases, was used in 98 percent of the Fortune 500 companies (with 91 percent of tablet activations in enterprise), and account for four times the web traffic of all Android tablets combined. In response to a question about whether the recent addition of Microsoft Office for iPad would help sales, Cook said that it likely would -- but that marketshare percentages from analysts like NPD are misleading, because "they count a lot of products [as tablets] that I don't think belong [in the same league as] iPad."

This is not the first time Cook has noted that even the most basic pre-school-oriented tablets are now counted as being in the same class as premium tablets like the Surface, the Galaxy Tab and the iPad. Even though "junk" tablets are included as equals in marketshare figures, he noted that according to NPD Apple continues to have 46 percent share -- a figure that would presumably be far higher if tablets were classed into categories (the way "feature phones" are excluded from "smartphone" sales, for example).

The fact that the iPad achieves far higher "real world usage" figures suggests that its actual share in a "premium tablet" market would be more like 80 percent. Likewise, the iPhone would dominate marketshare in a "premium smartphone" category rather than when classed with far more basic, cheap smartphones.

Cook said that customer satisfaction with the iPad was 98 percent, and that "there's nothing else in the world with that kind of [consumer rating]." He noted that the iPad was the fastest-growing product in Apple's history, and the only product that had ever been an "instant hit" in all three segments -- consumer, enterprise and education.

Apple has sold 210 million iPads in four years, about double the number of iPhones that it sold in the first four years of that product, and seven times the number of iPods sold in its first four years. Cook assured analysts that the iPad had a "great future" and that he was "very bullish" on the product, even speaking wistfully about the potential of the "next iPad, if you will" and that Apple was working on the "pipeline" to make that happen. He reiterated his belief that tablets will replace PCs as the most popular form of non-smartphone "computer" with the next few years.

On the specific point of how Office for iPad will help, Cook generally praised the product and welcomed Microsoft to the iPad, noting that there was still significant demand for the Office franchise, particularly in enterprise. He couldn't help but add, however that "if it [Office for iPad] had been done earlier, it would have been better for Microsoft, frankly."




by MacNN Staff

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Comments

  1. prl99

    Dedicated MacNNer

    Joined: 03-24-09

    Thank you for pointing out the sell-through facts as well as reminding people about real tablets versus toys (same with phones). It would be nice if analysts were required to be licensed and had to take some kind of certification test that explained these things instead of being able to spout off all kinds of garbage to meet their own needs.

  1. iphonerulez

    Dedicated MacNNer

    Joined: 11-28-08

    Wall Street believes Tim Cook is a liar and most of Apple's sales figures are an exaggeration. Analysts and the news media are always doing their best to put Apple in a bad light as a failing company. I'm not sure why they would want to do this, though. It's one of the most important consumer tech companies in America, so why would they want to undermine something like that. How does that help the economy or America in general?

  1. Charles Martin

    MacNN Editor

    Joined: 08-04-01

    iPhonerulez: because traders on Wall Street can make money when Apple goes down just as easily as when it goes up. You can bet on "futures," ie predicting the stock will fall by a certain time for example, and make a killing if you're right. So you can expect that when a lot of traders are betting the stock price will go down, you'll see more negative stories based on speculation in the press. Likewise, traders can also feed rumors designed to "pump" Apple's price to the media as well, and then dump the stock having made their money.

    As a rule, we here at MacNN try to let people know when a news story may be manipulative in nature, or based on speculation, etc.

  1. Spheric Harlot

    Clinically Insane

    Joined: 11-07-99

    Originally Posted by iphonerulezView Post

    Wall Street believes Tim Cook is a liar and most of Apple's sales figures are an exaggeration. Analysts and the news media are always doing their best to put Apple in a bad light as a failing company. I'm not sure why they would want to do this, though. It's one of the most important consumer tech companies in America, so why would they want to undermine something like that. How does that help the economy or America in general?



    People hell-bent on their own profit don't give a wet [blank] about helping the economy or America in general.

  1. panjandrum

    Junior Member

    Joined: 12-01-04

    I've been around in the Apple world a long (long) time, and we've seen misleading figures before. Hopefully this is the case this time as well. We can look at the historic Mac vs. Windows (vs. Atari, vs. Commodore vs...) and see plenty of parallels however; where the Apple faithful continue to defend the platform despite real problems (anyone want to move back to System 7.5 and start crashing every few minutes? Anyone...?) Apple isn't perfect, and they do make missteps, mistakes, and blunders. They make some great stuff, but I can honestly say that 99+% of the feedback I hear currently from Mac and iOS users is negative in regards to the UI changes, and the interface between human and computer is the single most important thing to most people (and the thing that Apple is usually known for getting right). I read positive reviews online, and certainly some people genuinely like the changes, but I do not *ever* meet these people in real life. All I hear are complaints, and I hear them across the entire spectrum of users, from 4th graders at a school I support up through clients in their 80s; from complete novices through serious power-users. Nearly every day I hear things like "why did I ever upgrade?" and "can I revert back to x.x?" (usually Snow Leopard or anything prior to iOS 7). And this is often months (or even years) to get "adjusted" to the new ways of doing things. I guess to put in in a nutshell, a lot of users are unhappy with the direction Apple has taken, and that this could have an impact on sales (if people no longer see a clear advantage in using Apple software, why buy Apple devices?) Is Apple still making some great stuff? Sure! But there is also clearly a lot of dissatisfaction in the air, and Apple needs to listen to this and respond (to some extent they have; for example putting features back into iWork very quickly due to the uproar. It's a good sign that Apple seems to be at least occasionally listening to the needs of users).

  1. davesmall

    Fresh-Faced Recruit

    Joined: 10-20-06

    Stock market analysts are like cattle, ready to stampede in any direction at the slightest hint of a possible problem, and without confirmation.

  1. panjandrum

    Junior Member

    Joined: 12-01-04

    @davesmall. So, are you THE legendary Dave Small? Spectre GCR inventor?

  1. freediverx01

    Fresh-Faced Recruit

    Joined: 07-13-11

    iphonerulez wrote:
    "Wall Street believes ...most of Apple's sales figures are an exaggeration. Analysts and the news media ... always ...put Apple in a bad light... why would they want to undermine [Apple] like that. How does that help the economy or America in general?"

    What on earth makes you think that Wall Street or analysts have any interest in helping the economy or America in general? The only thing they care about is lining their own pockets. If a typical Wall Street banker had a chance to make a buck by bankrupting the country he would not hesitate to do so. The stock market is just a giant casino betting on the ups and downs of corporations.

  1. Spheric Harlot

    Clinically Insane

    Joined: 11-07-99

    Originally Posted by freediverx01View Post

    The stock market is just a giant casino betting on the ups and downs of corporations.



    Except one where spreading rumors helps manipulate the odds.

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