Tim Cook Admits Apple's $30 Billion Business Is Slowing

This week, Tim Cook finally acknowledged what analysts have been cautioning for the larger part of 2014 -- Apple's (NASDAQ: AAPL  ) $30 billion iPad business is slowing. Tim Cook, always the optimist, called this a "speed bump," something he's seen in every product. Is Tim Cook correct about Apple's recent rough patch, or is something more ominous afoot?

Perhaps more than just a rough patch
Until this interview, Tim Cook has responded to questions regarding Apple's iPad slowdown by stating it is the fastest-growing product in Apple's history. And he's absolutely right, but there's no denying this growth has slowed. If you look at the chart below chronicling the last three years, you can see that on a units-sold basis growth has slowed considerably:

So as you can see, although units sold hit its high-water mark in 2014's seasonally heavy first fiscal quarter, the second and third quarter have been tough for the iPad purveyor. Matter of fact, on a year-over-year basis, Apple actually sold less iPads than the previous fiscal year's quarter.

After a shocking second quarter that saw sales drop 16% on a year-over-year basis by dropping from 19.48 million units sold in 2013 to 16.35 million units in 2014, Apple followed that up with another -- albeit more modest -- sales drop of 9.2% by going from 14.62 million to 13.28 million.

Since investors are paying for earnings, let's look at the precursor for earnings -- revenue.

Source: Apple's 10Qs. Revenue is on the left Y-Axis and is in millions. Right Y-axis is year-over-year growth.

The end result is Apple's iPad line had a year-over-year drop of 5.4% and presented headwinds to Apple's overall top-line growth rate that clocked in at 5.1%. And although a growth rate of 5.1% is nothing to laugh at, for Apple it's relatively modest considering from 2010-2013 the company grew its top line 37.6% per year.

But growth could be around the corner
Apple's never been the type of company to rest on its laurels. And it appears Cupertino has another trick up its sleeve to reverse the iPad line's deceleration -- a new iPad. This rumor, courtesy of Bloomberg has Apple bringing to market a new 12.9 inch iPad to be released early next year.

It appears the larger form factor will be a way for Apple to mitigate a potential challenger in Microsoft's (NASDAQ: MSFT  ) Surface Pro 3 tablet. Although the unit receives high marks from critics, the Surface line has failed to catch on with consumers in any meaningful type of way. However, with the new Surface Pro 3 ads, it appears Microsoft is positioning itself not as another tablet but rather as a laptop replacement.

The new form factor helps Apple's top line by surpassing the Surface Pro 3's size -- 12 inches -- giving potential customers a true tablet-to-tablet comparison. And that's important because it appears the tablet market is shrinking faster than expected -- according to NPD DisplaySearch, tablet shipments will "only" grow 14% in 2014 to 285 million units instead of the 315 million previously projected. If growth is decelerating in tablets, it would benefit Apple to control a larger market share.

Another potential reason for Apple to offer a larger unit is for an enterprise play. A recent partnership with IBM shows Apple is serious about competing for the business set. Although Microsoft dominates the enterprise computer market through its Microsoft Office line, Apple's iPad is the tablet of choice for business users. If Apple is able to present a larger tablet to compete with Microsoft's Surface, it will mitigate Surface's threat to Apple's growing enterprise solutions.

Final thoughts
It's finally good to hear Tim Cook admit that growth has slowed in its iPad line. Although its iPhone line dominates its revenue haul, the iPad is its second-largest product by revenue. However, it appears the company is taking steps to reverse this trend. Investors would be wise to continue to follow Apple's 12.9-inch iPad news and watch its movements into enterprise.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Read/Post Comments (0) | Recommend This Article (5)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3086808, ~/Articles/ArticleHandler.aspx, 10/22/2014 6:34:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement