By any normal measure, it was a good quarter for Apple: Revenues and earnings beat analyst estimates handily, iPhone sales were robust, even the good old Mac eked out a nice little gain. But CEO Tim Cook still seemed to be on the defensive from the get-go, all because of the iPad.
Second-quarter sales of the tablet, Cook preemptively pointed out at the beginning of the earnings call, were at the high end of Apple’s forecast. So who cares, he seemed to be saying, if those sales were at the low end of analysts’ projections?
But in the expectations-are-everything world of financial reporting, disparities between projections and reality can’t be ignored. And so Cook had to spend a lot of time on the call explaining why iPad sales were down this year compared to the second quarter of 2013—from 19.48 million units in 2013 to 16.35 million this year, from $8.7 billion in sales to $7.6 billion. “Sales” and “down” are not words that we’re used to seeing together when talking about Apple, so explanations are called for.
Cook had no shortage of them.
First, he put things in perspective. Calling the iPad “the fastest growing product in Apple’s history,” he said that Apple has sold more than 210 million of the tablet in the four years since it launched—almost twice as many as the iPhone in a comparable period of time and almost seven times as many as the iPod.
Second, he put on his Mr. Operations cap (which, let’s face it, is his favorite). He pointed out that, in the second quarter of 2013, Apple fulfilled a bunch of iPad mini orders that had been backing up in the system since the quarter before. This year, he said, the company did a better job of balancing supply and demand. In other words, that year-ago sales bulge, in comparison to which this year’s sales seemed to be a disappointment, was a mistake.
After that, Cook played the niche card: Tablet sales overall might be down, but, hey, we’re doing great in education! Seriously: Apple claims to have a 95 percent share of the tablet market in schools. And it’s doing well in the enterprise, too: Virtually all—98 percent—of the companies in the Fortune 500 are using iPads, he said; according to Good.technology, 97 percent of tablet-activations in the enterprise are iPads.
There’s good news elsewhere, too, according to Cook: Customer satisfaction at 98 percent. Intent to buy at two-thirds. Four times the Web traffic of any other tablet. The bottom line, he said, is that you can’t have a “number that everybody’s thrilled with” every quarter. But the trend over time, he insisted, looks very good.
That is, of course, Apple’s trump card: The future. “The thing that drives us more than any of this,” Cook said, “is the next iPad, the things that are in the pipeline, [the things] that we can do to make the product even better.” Don’t like what you’re seeing right now? Don’t worry: There’s always greater stuff coming down the pike.
When it comes down to it, I have to admit that I’m with Cook on this one. A one quarter downtick does not a downtrend make. The longer-term trends still seem to favor the tablet—and Apple still has the tablet that defines the category.
Tablet adoption is still on the upswing; this is not a saturated market by any means. Two-thirds of the people registering an iPad in the past six months, Cook said, were new to iPad; compare that to the iPhone, where only half—only half!—of the new registrants were new.
And we’re still in the middle of a significant long-term shift from PC to tablet. The Mac is still selling steadily, but the iPad passed it a long time ago. “We continue to believe that the tablet market will surpass the [overall] PC market in size within the next few years,” Cook said, “and we believe that Apple will be a major beneficiary of this trend.”
You can’t really blame the analysts for their focus on the iPad: The fall in tablet sales was immediately apparent to anyone who looked at Apple’s SEC filing. But despite that one short-term result, despite that one quarter’s numbers, the iPad’s essential selling point has not changed: It still does a lot of what people need a “computer” to do, without the cost or bulk of an actual Mac, and it still does more than an iPhone can. As long as those things hold true, I think the iPad’s numbers will take care of themselves.
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