Apple’s June quarter was pretty much a snooze, with everything in line with expectations.
There was one thing that stood out, though: The iPad was worse than expected, and the Mac was better than expected.
This runs contrary to the story line that had been forming as of late. We’re supposed to be in a post-PC world where tablets become the new PC, and the PC dies.
On a unit basis, this story is still true. Apple sold 13.3 million iPads and just 4.4 million Macs. On a revenue basis, however, the product lines are nearly even. iPad revenue was $US5.9 billion, and Mac revenue was $US5.5 billion.
The iPhone was strong, with Apple selling 35.2 million units, which generated $US19.7 billion in revenue.
There are a number of logical reasons for the iPad’s slow down: Apple sold 225 million iPads since it launched in 2010. The iPad doesn’t need to be upgraded as often as a phone, since it’s not used as much as a phone. And, duh, it’s not as productive/useful as a laptop, and people are probably due for laptop upgrades. Plus, the growth for tablets is coming from low end of the market, and Apple doesn’t do low-end.
(A simpler theory comes from our own Henry Blodget, who put it best on Twitter last night: “Basically, you just don’t need iPhone, iPad, and Mac… pick your two.”)
The deterioration of the iPad business is particularly interesting right now. Apple is expected to launch two new iPhones with bigger screens at the end of September. The current iPhone has a 4-inch screen. The iPhone 6 is expected to come in 4.7-inch and 5.5-inch screen sizes.
What happens to the iPad when Apple launches a 5.5-inch iPhone? “Kaboom,” says Blodget. After all, a big iPhone will do pretty much the same stuff an iPad does.
Apple analyst Gene Munster agrees. And he thinks it “is a good thing.” He lowered his iPad estimate for 2015 from 78 million to 74 million as Apple looks to release its 5.5-inch iPhone.
“Overall, we see this as a positive trade off given we expect the 5.5 inch iPhone ASP to be around $US700 (in line with Samsung Galaxy Note pricing) with gross margins of ~45%, which compares to iPad Mini ASP of around $US400 with gross margins of ~30%,” says Munster.
If the iPhone 6 eats the sales 4 million iPads, it actually adds $US1.2 billion to Apple’s sales and $US780 million in gross profits.
So, while the iPad business is slowing, and shows no signs of getting better, it’s not that big a problem for Apple. The iPhone is going to pick up the slack.
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