Hey, Apple, What About Those iPads?

The market's relishing Apple's blowout quarterly results, and rightfully so. There's plenty to like in the consumer tech titan's fiscal second quarter.

  • iPhone unit sales soared 17% for the period.
  • Apple's revenue may have inched less than 5% higher, but margins improved with net income climbing 7% during the quarter.
  • As a result of aggressive share buybacks, fully diluted earnings per share rose 15%, blowing past Wall Street expectations.
  • Stock splits may be zero-sum games, but there's no denying that the market's responding favorably to Apple's 7-for-1 stock split announcement.

These are just some of the reasons for the stock moving higher today, but what about the iPad? This is Apple's most recent major product category, following the debut of the iPod in 2001 and the iPhone in 2007, but it went the wrong way during the past three months.

Apple sold just 16.35 million iPads during the quarter. That's naturally well short of the 26 million that it cleared during the holiday quarter, but it was also 16% short of the 19.5 million iPads that it cleared during last year's fiscal second quarter. Once again, it's more than likely that Apple relinquished gobs of market share in the tablet space. There are plenty of mostly Android tablets out there put out by companies without the lofty margin markups that Apple is getting away with here.


The reason why a 16% year-over-year drop is so problematic is that Apple seemed to be gaining ground there after posting its first ever year-over-year decline in iPad unit three quarters ago. It followed that up with a flat performance during 2013's fiscal fourth quarter and a 14% pop in this fiscal year's freshman quarter.  

It's true that iPad revenue only slipped 13%. Folks are paying more for their iPads. However, isn't that also the problem? There are way too many cheap tablets out there, and unlike the iPhone, which stateside carriers subsidize to the point where it isn't that much more expensive than other shiny new smartphones, no mobile company wants to shave hundreds of dollars off your iPad purchase in exchange for a two-year contract. 

We'll have to wait a few days before Gartner, IDC, and other industry trackers put out their figures for tablet sales during the first three months of this calendar year. It's then that we will be able to fully assess how thin Apple's slice has become of this once-promising market. 

This obviously isn't going to freak out Apple bulls. They don't have a problem selling fewer tablets as long as Apple can sustain healthy margins. However, it has to be worrisome at some level to see the iPhone grow to the point where it's accounting for 57% of Apple's revenue and what was likely an even bigger chunk of its profit. The market's cheering Apple on today. They know that the iPod is fading fast. They accept meandering Mac growth. However, if the iPad continues to shrink in relevance, it's going to be that much more imperative that Apple crank out these game-changing products in new categories that we've been teased about for years.

Bigger than iPads, here's the biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one 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.

The article Hey, Apple, What About Those iPads? originally appeared on Fool.com.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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