Apple reported mixed quarterly earnings today, with increased iPhone sales, higher than expected net income and strong growth in gross margins offset by declining iPad sales and lower than expected revenue.
Apple reported $37.4 billion in revenue for Q3, down slightly from the $38 billion forecasted by analysts, but a 5.9% increase from the same period last year. Earnings per share stood at $1.28, boosted by the company’s stock repurchase program.
The Cupertino, California-based company sold 35.2 million iPhones in the three months ending June 28, an increase of 12.7% from the same period a year ago, but slightly below analyst expectations of 35.9 million units. Sales were particularly strong in the BRIC countries, with China alone seeing a 48% increase.
Sales of the iPad continued to be a cause for concern for Apple, dropping for the second straight quarter. Apple sold 13.28 million iPads in the last three months, down 9.2 % from the previous year and short of Wall Street expectations. iPads were still selling well in developing markets, with strong sales in the Middle East and China, but growth in those regions was more than offset by poor sales in developed markets such as the U.S.
Despite this, CEO Tim Cook was buoyant about the iPad’s performance. “In just over four years, we have now sold 225 million iPads, which is a larger number than anyone would have predicted at the time,” he said on a company conference call. “We still feel the category at the time is in its early days.”
Cook revealed that the iPad had an 85% share of the education market and a 99% share of Fortune 500 companies, however penetration in business is low: around 20%. This contrasts with the penetration of Apple notebooks in business, which is over 50%. Cook went on to state that this was part of the reason behind the recently announced IBM partnership. “We win if we can drive the penetration number from 20 to 60,” he said of the IBM deal. That would “make the walls shake.”
For the next quarter, Apple has forecast revenues in the range of $37-40 billion, a bigger gap than the company usually uses, suggesting that there is some uncertainty for the next three months. Apple sees gross margins between 37% and 38%, which would be similar to last year’s figure of 37%.
Despite Cook’s insistence that falling iPad sales do not worry Apple, two straight quarters of decline and falling performance in developed markets are surely causing some concern within the company. As smartphones become more powerful, it is feared that tablets will be squeezed into a niche position – not powerful enough to overthrow the laptop, and too big to beat a smartphone. Cook maintains that iPads will overtake PCs at some point, and perhaps that is why the only point of concern he raised was regarding the penetration among businesses. His solution to that is the partnership with IBM, but it remains to be seen whether this can revive the iPad.