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."