Decoding Tim Cook’s words on the iPad: he’s worried

The iPad is the only blemish on Apple’s sterling results. For the sixth straight quarter, iPad growth is flat.

Apple iPad shipment growth

Tim Cook spoke at length on this very subject in Apple’s earnings call, as recorded in this Quartz article. Let’s decode it.

Market saturation: “The last market research data is in the June quarter. If you look at our top six revenue countries, in the country that sold the lowest percentage of iPads to people who had never bought an iPad before, that number is 50%. And the range goes from 50% to over 70%. And so when I look at first-time buyer rates in that area, that’s not a saturated market.”

Strong sales in emerging markets: “If you look at how we did in emerging markets, like BRIC countries as an example, we were up 20% for the full-year of [fiscal 2014].”

Interpretation: Apple didn’t do well in non-BRIC countries.

Implication: For iPad sales to grow in BRIC countries, that means they declined in non-BRIC countries. If iPad sales declined in non-BRIC countries while tablets overall are flat in those markets, that also means other tablets grew.

For example, it could mean that in the US and Europe, iPad sales decreased while Android and Microsoft tablets actually increased.

That’s not just saturation, that’s getting beat by the competition. Not good news for Apple.

 Slower-than-anticipated replacement cycles: “What you do see is that people hold onto their iPads longer than they do a phone. And because we’ve only been in this business four years, we don’t really know what the upgrade cycle will be for people. So that’s a difficult thing to call.”

Interpretation: The upgrade cycle could be longer than four years.

Implication: Uh-oh.

Potential for more sales to corporations: “We also know that the deeper the apps go in the enterprise, the more it opens up avenues in enterprise. That’s a key part of the IBM partnership and what I think customers will get out of that.”

Interpretation: Apple sees business as a growth market.

Implication: 13-inch iPad Pro with split screen functionality. And first party keyboard too hopefully?

Cannibalization from the Mac and iPhone: “I’m sure that some people looked at a Mac and an iPad and decided on a Mac. I don’t have research to demonstrate that, but I’m sure of that just looking at the numbers. And I’m fine with that, by the way. I’m sure that some people will look at an iPad and an iPhone and decide just to get an iPhone. And I’m fine with that, as well.”

Interpretation: Increasingly, consumers buy just one of an iPad or Mac; they don’t buy both. The iPhone 6 will also probably cannibalize the iPad mini.

Implication: No one has decried the convergence between phone and mini tablet and between tablet and laptop more than Apple and Apple loyalists. That opinion is looking more and more wrong — the lines are blurring and will disappear one day.

I wonder if this will make Apple pundits more humble.

The big picture: “Over the long arc of time, my own judgment is that iPad has a great future. How the individual 90-day clicks work out, I don’t know. But I’m very bullish on where we can take iPad over time.”

In conclusion: “That’s long answer to your question, but I thought it was important for you to at least hear my perspective. And you can judge it as you will.”

Interpretation: For Cook to devote so much air time to the iPad says a lot about Apple’s concern with the product category.

Implication: Change is coming for the iPad and I look forward to seeing Apple combine a fridge with a toaster. 🙂

I kid. If Apple put their minds to making the iPad a capable laptop replacement, I’m sure they’d do well — just like they did a big screen smartphone well even though the company itself said a big screen phone would suck.

As much as I like the Surface Pro 3, it can be done better and I’d love to see Apple’s attempt.

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