Apple’s Tim Cook Says iPad Sales Behind IBM Partnership

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During Apple's Fiscal Q3 2014 Earnings Report, CEO Tim Cook clarified, on several occasions, the motivation for the partnership with IBM. The goal is to create a catalyst for iPad sales in the enterprise.

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The initial remarks came during the call's preamble in which Tim Cook and CFO Luca Maestri summarized Apple's the hardware unit sales. For the second quarter in a row now, Tim Cook has had to explain a slight drop in iPad sales, both year over year and in successive quarters, and that has to be a painful process.

Apple sold 13.3 million iPads in the June quarter, down from 16.4 million in Q2.

Mr. Cook briefly remarked that "iPad sales met our expectations, but we realize they didn't meet many of yours," and then he alluded to the IBM partnership as a "catalyst for iPad sales." In a few minutes, he would say a whole lot more.

Shortly thereafter, CFO Luca Maestri explained that iPad sales were actually up substantially in the Middle East, China and India, but that was more than offset by a decline in more mature markets.

At just under 30 minutes into the call, in response to Bill Schope with Goldman Sachs, Tim answered a rather pointed question about the presumed long-term market for tablets and the competitive landscape.

Mr. Cook's strategy was, first, to remind us that Apple has sold over 225 million iPads to date. He reflected that that was more than anyone had ever expected just a few years ago.

Next, he stated that he thought that a lot of innovation can be brought to the iPad market, and Apple intends to do just that. Mr. Cook was also pleased to note that 50 percent of iPad buyers are first time tablet buyers.

There are some bright spots. Apple has 59 percent of the tablet market in units and 70 percent in dollars. Mr. Cook cited estimates that by the year 2018, there will be a global annual market for 350 million tablets.

The iPad Problem

It can probably go without saying that Apple, seeing the trends, asked itself what it could do to spur iPad sales given the weakness in the more mature markets.

And that's where the partnership with IBM comes in. The Apple CEO sees each company as complementary to each other. Each has solid revenue streams and that don't conflict with each other. But to the extent that IBM can bring to bear its big data and analytics tools to the mobile market and Apple can bring first-class business hardware, in the form of the iPad, to the enterprise market both can prosper side-by-side.

Mr. Cook said he wants to "see what it [partnership] can do to sales."  The combination of product innovations and the IBM relationship is seen as the fix to the iPad sales problem.

The Mac Surge

Finally, the surge in Mac sales appears to play a role here. Frequently during the call, Mr. Cook and Mr. Maestri commented on the surge in Mac sales being driven by the "portables" market, meaning MacBooks. In particular, they gave credit to the iPad Air. (There was a recent price drop.)

At this point one might conjecture about how, perhaps, those in all the mature market segments, (education, business, etc.) have been feeling the need for a new, sleek, capable MacBook Air, ready for Yosemite and have all the the iPads they need. On the other hand, China, India and the Middle East are still catching up, and the market is nowhere near saturated. It remains to be seen if the workings of this reverse cannibalization can be clarified.

Perhaps it's just a short term effect and will be negated when those iPad innovations Mr. Cook talked about hit the street.

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Comments

skipaq

IPad sales growth will experience new growth with new innovations. But the upgrade cycle for iPads is closer to that of Macs than that of iPhones. That has an impact on sales in markets with a large installed base of iPad owners. I have had 3 iPhones and 1 iPad. My wife has had 4 iPhones. I don’t see a need for upgrading the iPad; but will buy the coming model and pass mine on to my wife. We are likely to buy four times as many iPhones as iPads.

iJack

”..Tim Cook has had to explain a slight drop in iPad sales..”

I’m not sure that a 19% drop in sales in one quarter can be considered “slight.”

Lee Dronick

Jack I think that iPad sales were down 9% not 19%. That it is still quote a drop, but I assume that people are waiting for new models.

iJack

“Apple sold 13.3 million iPads in the June quarter, down from 16.4 million in Q2.”

16.4 – 13.3 = 3.1
3.1 / 16.4 = 0.18902439024 and rounds to 19%

Lee Dronick

Jack I was taking my 9% from the linked story, and from what I read on some other news sites. Either way the sales of iPads are down.

http://www.macobserver.com/tmo/article/apple-posts-record-june-quarter-and-20-eps-growth

dmuzzy

I can see a couple of issues at play.  As skipaq mentioned,  iPad’s do not require the same upgrade cycle as iPhone.  Once the initial market is sufficiently saturated,  it seems logical that sales should flatten or drop a bit.

I do think,  however,  that the larger phone devices are significantly eating into iPad sales. Now that the iPad has “taught” us that the small,  touch screen interface is viable for much of our needs,  users are beginning to find that larger phones can be adequate as well.

Even though I prefer iOS to Android,  I find that I seldom use my iPad,  as my Galaxy Note is just large enough to do what I need.  (I am hoping that the next iPhone will be large enough to let me switch back.)

Just my 2©

Damon

skipaq

The problem with this article and the “slight” decline in sales is comparing Q3 sales to Q2 sales. By comparing Q3 2014 to Q3 2013 the decline would be 1.3M in sales rather than 3.1M (14.6M compared to 13.3M). 1.3/14.6 = .089 which is the 9% that Lee references.

While sequential quarter comparisons are interesting; it is the comparison of this years results to last years that is telling. There are are number of reasons for this including seasonal impact and product release schedules.

iJack

Whether the comparison is a problem or not, I was referencing the article I had just read; the one right here, on this page. And my objection was whether a 19% drop in sales–under any circumstances–could be considered “slight.”

Lee Dronick

Jack I guess that it depends in which camp is the Spinmaster. If it was a 0.19% drop then Apple’s competition would call it a “nose dive. smile

iJack

What did Apple’s competition call this?

Andhaka

If they want to get more iPads into business they nedd the iOS8 app-crossing feature to work well and a robust file system to manage multiple files more akin to a normal Mac.

That and a lot of good business applications obviously.

Cheers

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