During Apple's 2014 Q2 Earnings Report, some technical issues related to channel inventory for iPad sales were explained, so the Q2 results aren't as bad as they look. Nevertheless, sales have flattened and UBS analyst Steve Milanovich wanted to hear more. He got an earful.
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Mr. Milanovich asked, Tim, I understand the iPad is not as weak as it appears on a sell-through basis, still it's relatively flat over the last year in sell-through. What are your thoughts in terms of why that is — and can that accelerate with [Microsoft] Office on the iPad going forward?
Tim Cook spoke with vigorous enthusiasm — much longer than usual in a typical earnings report Q&A. Here is is response, slightly edited for length.
Good Question. On the iPad, here's what I see. It's been the fast growing product in Apple's history. And the only product we've ever made that was instantly a hit in three of our key markets: consumer, the enterprise and education. ... In the first four years we've sold over 210 million, which is more than anyone thought was possible in that period of time.... We've come a long way very quickly.
Looking at it by market for a bit, which I think is important ... in the education market in the U.S., we have a 95 percent share. My belief is that the match has been lit, and it's very clear to the educators that have studied this that student achievement is higher with iPad in the classroom than without it. I'm confident that we have a really great start in education, far beyond the U.S. now, and this is happening in many parts of the world.
In the Enterprise market, we're seeing all, virtually all, 98 percent of the Fortune 500 using the iPad, and according to Good Technologies, which looks at activations, of tablets, the latest we have from them is that 91 percent of tablets in the enterprise have been iPads. This an astonishing number. And many of those companies are writing proprietary apps ... and this is great for that company because they're more productive.
In the retail market, if you look at the U.S. as a proxy, the NPD numbers from March just came out, and we had 46 percent share. Embedded ... in there are a lot of things I personally wouldn't put in the same category as the iPad, that are weighing the share down. It's certainly a market we wouldn't play in, and it's the type of product you'd never see [with] an Apple brand. So we feel like we're doing well there.
Office, I believe, does help. It's very unclear to say how much. I believe that of it had been done earlier, it would have been even better for Microsoft.... But I do see that Office is still a very key franchise in the enterprise, and I think having it on iPad is good. And I wholeheartedly welcome Microsoft to the App Store. I do think it helps us, particularly in the enterprise area.
Mr. Cook went on to note that customer satisfaction stats are at 98 percent. The iPad also has four times the Web traffic as all Android tablets combined. Mr. Cook continued.
So when I look at all of these, I feel great. That doesn't mean that every quarter is going to be a number that everybody's thrilled with. But over the arc of time, the iPad has a great future. But the thing that drives us, is the next iPad, if you will. The things that we can do to make the product even better. There's no shortage of work going into that or shortage of ideas. I can't help but be extremely excited about where we are.... I am very bullish on iPad.
Some takeaways.
- The iPad has a strong presence in professional and educational markets. MS Office is a strong plus. This bodes well for the product's future.
- If you want to create a broad category and dump every tablet-like device in there, the iPad will, of course, have a diluted market share.
- The Web traffic share is a sign that people who want to do serious things with a tablet buy an iPad. Why go after anyone else in the marketplace?
- Unit sales growth in a young market is not always monotonic, and there's no reason to demand it.
- Mr. Cook appears to be very enthusiastic about the future iPads. He hinted that the next iPad and those in the future won't be just a mild tweak, but rather full of rich ideas.
Apple's iPad is very successful based on the company's high standards and considering how it designs products. Once again, Mr. Cook has set the record straight and explained how armchair analysis doesn't cut it at the CEO level.