Even though Apple’s Q2 2014 earnings on Wednesday broke all previous company records for the January-March quarter—with growth across nearly all product lines in all markets—one product was left behind. And that product was the iPad.
Apple sold just 16.4 million iPad units in the quarter, a 16% drop-off from roughly 19.5 million units in the same quarter a year earlier.
Strong iPhones sales more than made up for the poor showing from the iPad, as expected; Apple sold more iPhone models through more carriers than ever this year, particularly in Greater China. But that doesn’t explain why iPad sales are slowing to a crawl.
The Reality Distortion Field Is Fading
Early on in Wednesday’s conference call with investors, Cook offered a couple of possible explanations for the iPad’s lackluster showing.
“We believe all of the difference can be explained in two factors,” Cook said. “We increased iPad channel inventory last year, but this year reduced it. And last year, we ended the December quarter with a substantial backlog of iPad minis that were shipped in March, whereas this year they reached a [balance].”
Cook blames channel inventory changes, but data shows the iPad has been stalling in the market for some time. In fact, iPad unit sales have dropped on a yearly basis in two of the past four quarters, and were only slightly up in a third. Over that period as a whole, iPad sales actually fell 3.2% compared to a year earlier.
According to research firm IDC, tablet shipments are surging as the iPad slumps, with Android and (to some extent, at least) Windows tablets taking a serious bite out of Apple. In 2012, Apple’s iPad controlled over 60% of the market; by last June, the iPad’s share had fallen to 33%, while Android tablets accounted for 63% of the market—a near total reversal in market share in just 12 months. Things haven’t changed much since then.
In October, Apple tried to stem the tide with the new iPad Air and iPad mini with Retina display. Those products became its new high-end tablets, while the iPad mini (sans Retina display) and iPad 2 got $100 price cuts. Yet the plethora of offerings so far hasn’t done much to re-energize interest in the iPad.
Cook pointed out that the iPad still dominates the education and enterprise markets—with 95% and 98% market share in those areas, respectively. He also insisted that no other tablet has a 98% customer satisfaction rating, and that the iPad is used more often than other tablets, especially for Web search. Still, Cook couldn’t explain why the new iPads, particularly the thinner and lighter iPad Air, haven’t bolstered sales.
“The thing that drives us are the ‘next iPads,’ if you will, the things we can do to make the products even better,” Cook said. “And there’s no shortage of work going into that, and no shortage in ideas going into that. So when I back up from all of that I can’t help but feel extremely excited. I think we did a good job at explaining the disconnect of the street’s view [of iPad sales and the reality], and I think we should’ve been a little more clear on channel inventory last year, but I am still very bullish on the iPad.”
The Future For Apple’s Tablet
The iPad may still be the best tablet on the market, but it’s certainly not the cheapest one available, and more importantly, it’s not exactly “innovative” anymore.
Apple doesn’t stuff its new iPads with new features every year, so the iPad relies on reductive innovation, which Apple’s lead designer Jony Ive describes as the most troubling Catch-22 about creating new products:
We’re often faced with a paradox when we design: To make products smaller and lighter, while at the same time more powerful. The more we reduce a product’s physical volume, the more difficult it becomes to increase its power and maintain its battery life. But if we can overcome these challenges, we can make something without compromises.
But therein lies the problem: Eventually, customers will balk at paying more for a product that’s not too dissimilar from a cheaper, rival machine, regardless of that product’s reputation. Ideally, Apple would drop its prices for the iPad to make them more accessible to more people. But if Apple plans to keep selling the iPad at the upper end of the price continuum, it needs to avoid scaring away new customers by injecting some kind of “newness” without adding expensive features just for the sake of change.
Continually innovating the iPad will prove to be a great challenge for Apple, but if the company’s other products continue to sell, it won’t need to rely on the iPad to drive the company’s growth—just like the iPod and the Mac, once Apple’s big breadwinners, now play minor supporting roles. The iPhone is still going strong, but there’s always the likelihood of “one more thing”—rumors are pointing to a more elaborate Apple TV product in 2014, as well as a new wearable for the wrist, presumptively dubbed the “iWatch.”
Apple will likely have some news before long. Excepting the March rollout of CarPlay—an iOS 7 feature that connects car in-vehicle infotainment systems to Apple’s mobile ecosystem—and new iPads hitting China at the beginning of April, Apple has remained eerily quiet over the past few months. Look forward to June 2, the first day of Apple’s Worldwide Developers Conference in San Francisco, which is typically when Apple unveils new iOS and OS X software. This year, we might see some new hardware alongside the new software, given Amazon’s recently-released Fire TV set-top box and the fact Apple TV has gone largely unchanged since 2010.
As Cook concluded Wednesday’s call with investors, he mentioned that Apple is not interested racing to unveil new products or technologies, but is certainly “in a race to make the best products people will love.” In the case of the iPad, Apple may choose to pursue refinements rather than innovations. That may as flashy as adding new features and functions every year, but polishing innovative products is just as important to Apple’s strategy as innovating them in the first place.