ASYMCO: The iPad discontinuity

InsightaaS: Across the Net often highlights posts from Horace Dediu’s ASYMCO blog, an important source of information on issues pertaining to Apple and to the smartphone and related markets generally. In this post, Dediu parses Apple CEO Tim Cook's reaction to iPad sales statistics and related questions from financial analysts. For context, Apple sales for the quarter slumped in 1Q14. Much of the decline is due to changes in channel inventory; the net sales out figures declined by only about 500,000 units, from 18 million to roughly 17.5 million. However, tablets are seen as a growth market, and Cook was pressed on iPad performance in a Q&A. Dediu examines Cook's contention that "the trend over time — over the arc of time, things look very, very good." Employing a penetration model that incorporates market data and a comparison to smartphone growth, Dediu shows that "in comparison with the smartphone, the tablet is rising much faster," and, based on an observation that "the penetration data is self-evident. It’s improbable that penetration goes to 42% as it just did, and then stops suddenly," he concludes that the data "seems to support [Apple management's] confidence" in a "bullish" iPad outlook.

For the record, InsightaaS is a bit less sanguine. Data from Techaisle (which to be fair, Dediu likely has not seen) indicates that many more companies are moving to a multi-OS tablet environment, and are uncertain which OS they will invest in in 2014. It may be that there is a simpler explanation for iPad market stagnation than a deceleration of tablet adoption: it may be that Android tablets are winning a high proportion of new business.

iPad sales were unexpectedly slow in Q1. Tim Cook explained it as follows:

iPad sales came in at the high end of our expectations, but we realized they were below analysts’ estimates and I would like to proactively address why we think there was a difference. We believe almost all of the difference can be explained by two factors.

First, in the March quarter last year we significantly increased iPad channel inventory, while this year we significantly reduced it.

Second, we ended the December quarter last year with a substantial backlog of iPad mini that was subsequently shipped in the March quarter whereas we ended the December quarter this year near supply demand balance.

We continue to believe that the tablet market will surpass the PC market in size within the next few years, and we believe that Apple will be a major beneficiary of this trend.

Tim Cook went on to say "over two-thirds of people registering an iPad in the last six months were new to iPad"

In a later discussion, Luca Maestri said:

As Tim explained earlier, our iPad results and the comparison to the March quarter last year were heavily influenced by channel inventory changes. Specifically, this year we sold 16.4 million iPad into our channel and sold through almost 17.5 million, reducing our channel inventory by 1.1 million units.

Last year, we sold over 19.4 million iPads into our channels and sold through 18 million, and therefore increased channel inventory by 1.4 million units. As a result, the year-over-year sell through decline was only 3% compared to the sell-in decline of 16%...

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