Apple Inc's Disappointment: The Highs and Lows of Apple's iPad

This quarter's iPad sales decline was only the second time the tablet's sales have dropped since the device debuted. Source: Apple.

Apple (NASDAQ: AAPL  ) just beat Wall Street estimates by posting higher-than-expected fiscal Q2 revenue and earnings per share, as well as higher iPhone sales.

But one of the disappointing points this quarter came from the drop in iPad sales year over year. So let's take a quick look at what Apple CEO Tim Cook had to say about the drop, how strong the iPad's influence is in specific segments, and the tablet's future potential.

Why iPad sales fell
Cook was quick to talk early on in the earnings call that iPad sales were at the high end of Apple's expectations, but lower than what analysts estimated. Here's what he had to say:

First, in the March quarter last year we significantly increased iPad channel inventory, while this year we significantly reduced it.

He added:

Second, we ended the December quarter last year with a substantial backlog of iPad mini that was subsequently shipped in the March quarter whereas we ended the December quarter this year near supply demand balance.

Since the iPad's debut, this was only the second time the company's had a year-over-year decline in unit sales. iPad sales dropped about 16% year over year to 16.4 million units, down from 19.4 million units. Cook said when looking at sell-through numbers, though -- when Apple or a vendor sells an iPad directly to a customer -- the year-over-year drop is only 3%.

Source: Apple.

Where the iPad excels
While answering analyst questions, Cook remained steadfast about the iPad's current influence and its future prospects. He mentioned the following stats during the call:

  • Apple's sold 210 million iPads since it launched four years. That's twice as many iPhones and seven times as many iPods the company's sold in a comparable period of time, according to Apple.
  • The iPad makes up 95% of the education tablet market.
  • 91% of tablet activations in the enterprise sector were iPads.
  • Apple's tablet has a 98% customer satisfaction rate

While those stats are obviously great, and Cook's explanation for a drop in sales makes sense, at the end of the day the iPad may not have performed as well as Apple investors would want. But that doesn't mean Apple's tablet couldn't have some big upsides in the near future.

Making great even better
The iPad is clearly an amazing product, but the device simply doesn't have the same power and adaptability that notebooks have. And that's a bit of a problem, considering that Cook in the earnings call said, "We continue to believe that the tablet market will surpass the PC market in size within the next few years, and we believe that Apple will be a major beneficiary of this trend."

To do that, Apple will need to improve the iPad just a bit more. Its competitors have already moved into the pro tablet space, with Microsoft's Surface Pro 2 and Samsung's Galaxy Note Pro. Apple is fine with not being the first to enter new segments and investors should be, too, as long as it doesn't wait too much longer to do so.

Foolish final thoughts
Though the company's iPad sales decline isn't currently an ongoing trend, when next quarter's earnings come out, investors will likely be checking to see whether the iPad took another hit. I don't expect any major declines, and I'm more concerned that Apple bring a more robust iPad to market in the coming quarters.

I said at the end of last year that I think an iPad Pro version would debut in the calendar third quarter, but I'm starting to have my doubts now. I think the iPad's high penetration rate in both the education and enterprise markets makes it an ideal tablet to offer more powerful features, but so far Apple's taken a very conservative route. That's not unusual for the company, but it doesn't make it any easier to swallow when tablets sales declined this quarter and competitors already offer pro versions of their devices. 

This won't disappoint: Apple's next move
Though Apple is likely working on a new version of the iPad, there's another segment of the market it wants to dominate as well. One hundred of Apple's top engineers are busy building this new device in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.


Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2014, at 3:35 PM, jdmeck wrote:

    Some people just love to focus on the negative, no matter how small it is.

  • Report this Comment On April 26, 2014, at 7:20 PM, LVRich wrote:

    NO WHERE in the article does it mention MSFT just released office for ipad. At the same time trying to compare surface pro and galaxy note to an ipad, which are obviously inferior products. Its apples and oranges or better gold and tin.

    This is why 12 years old should not be allowed to write content.

  • Report this Comment On April 26, 2014, at 7:33 PM, thethreestooges wrote:

    Your brain mass must be tiny. Can you count up to 10,200,000,000? That's the $ profit APPLE made last quarter.

    True, iPad sales may be falling but making profit and something people really appreciate it when you can afford it. True, you can also get a cheap Android tablet for less than $40 at Walgreen or ToyRus that even a 2 years old don't want it.

    Sure, if iPad were reduce their price, you can afford one yourself and increase sale. Get a real job so you can afford it at present pricing.

  • Report this Comment On April 26, 2014, at 8:25 PM, iphonerulez wrote:

    Using the word disappointing to describe iPad sales depends on who you're talking about. I doubt Apple considers selling 16.4 million iPads a disappointment. I'm sure Wall Street considers any drop of sales, no matter how minor to be considered a disappointment. Wall Street's expectations are simply a belief or hope and are usually based on greed and not reality. Wall Street's view of sales is somewhat distorted based on greed. How do investors really know how many units a company should be able to sell at any one time? A company could sell tens of millions more of a product than a rival company but if sales drop, investors say it's a disappointment. That's just plain stupid. We're talking iPads and not cookies.

    Apple's iPad revenue is relatively huge by any normal standards for devices in that price range. I think headlines should be truthful about who is being disappointed. A headline saying iPads fail to meet Wall Street's expectations would be a more accurate headline. This game that analysts and investors play about companies needing to meet expectations despite a company raking in huge profits is quite a ridiculous game. What really bothers me is that the current state of the economy is never taken into account. Do consumers have more or less money to spend than the year before? Another thing to consider is the iPad replacement cycle. Next year at this time sales could go up much higher as older iPads actually need to be replaced.

  • Report this Comment On April 26, 2014, at 8:28 PM, Viking70 wrote:

    "The iPad is clearly an amazing product, but the device simply doesn't have the same power and adaptability that notebooks have."

    This is short-term thinking. The list of obsolete products is replete with comments like "that new product is inferior"...

    Maybe the tablet isn't as powerful as the laptop yet, but give it a year or two. Anyone who has a job that requires mobility will be using tablets over desktops/laptops/notebooks in the near future.

  • Report this Comment On April 26, 2014, at 10:27 PM, larryw101 wrote:

    Another fine example of the garbage journalism put out by Motley Fool.

    This clown Nieger needs to find some other way to make a living other than the pennies a click he gets here. He's always wrong and knows nothing of Apple.

    Thanks Motley for wasting my time.

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Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

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