updated 07:39 pm EDT, Tue July 22, 2014
Larger markets waiting on next iPad, sales in developing markets are way up
For the second time in as many quarters, Tim Cook has had to explain away drops in iPad sales. Last quarter, the iPad saw a 16 percent drop from the year-ago quarter, but Cook detailed a credible explanation that channel inventory from the holiday season had overstuffed retailers and that the drop was actually only three percent because of that, which fell within normal ranges. This time, iPad sales were down about 9.2 percent, which Cook largely blamed on anticipation for the next iPad coming this fall.
While it is true that both iPhone and iPad sales suffer in the quarter before an expected announcement of new models, the second quarterly drop in iPad sales may set tongues wagging that the market has matured among North American consumers. However, Cook said that sales of the iPad met expectations for this portion of the current model's life cycle -- meaning the company believes customers are holding back in anticipation of a new model coming soon.
Cook made a point of noting that iPad sales were up sharply in developing markets -- the BRIC countries of Brazil, Russia, India and China particularly -- and in K-12 education, but that this didn't offset the decline in North American consumer sales. He also told analysts that the company is proud of the fact that those who do buy the iPad love it -- the iPad Air had a 97 percent customer satisfaction rate, while the Retina iPad mini had scored an unheard-of 100 percent satisfaction rate.
He said also that studies had found that iPad customers tend to use their iPads extensively. Also of interest were statistics that showed that around half of all buyers of iPads are buying their first one.
Analysts, however, are unimpressed with such factors, and care only about unit shifting -- which fell by a million units year-over-year and missed consensus estimates that sales would be roughly flat. A small portion of the difference, Cook said, was due (again) to channel reduction and "market softness" in the US and Europe, but he conceded that overall sales were down despite progress in some markets.
However, Cook remains bullish on the iPad. He told analysts that the recent partnership with IBM would provide additional reinvigoration of iPad sales to enterprise, and dropped hints about the forthcoming next iPad, saying that the company in planning innovations for the product "in hardware, software and services" that should help spur growth heading into the holiday season. While no exact date has been announced, Apple is expected to again renew the iPad line in the fall alongside the iPhone.
Cook returned several times to the theme that the IBM deal should foster greater penetration of business sales of the iPhone and iPad. While Apple already has a mobile presence in 99 percent of the Fortune 500 and some 73 percent of the Global 500, he noted that actual penetration of the iPad in those companies was low -- in the 20-plus percent range -- compared to the iPhone's much higher percentage.
The revelation that IBM would be developing many of its 100 new apps for the platform in Apple's new programming language Swift may hold promise for Cook's observation that too many business apps are "ported from the desktop" and don't take full advantage of the iPad platform, which he again referred to as in its "early days." He also noted that the iPad had increased its presence in the K-12 educational segment to a total of 13 million units, which represented 85 percent of tablets in education. The iPad is also responsible for 80 percent of tablet e-commerce purchases, Cook said, reiterating that while sales may be in a lull over the summer, the iPad is still far and away the market leader in tablets by every measure.
He repeated his belief that tablet sales would eventually overtake desktop sales, pointing to continuing softness in the PC industry as well. Cook noted that Apple had sold a total of 225 million iPads in just the last four years, a remarkable total. Thus far, the company is on track to sell about 69 million iPads in calendar 2014, assuming sales are flat next quarter and repeat the level of sales seen during last year's holiday quarter.