Apple investors were rejoicing this week after the company reported first-quarter earnings that were far better than expected, thanks to strong iPhone sales. Throw in an additional $30 billion that the company plans to spend on stock buybacks and dividends, and shareholders ended the day with big grins.
Perhaps the only blemish on an otherwise big day for Apple were sales of iPads.
Analysts were expecting iPad sales to fall to 19.38 million from 19.48 million in the same quarter a year ago. Instead, the company said it sold only 16.35 million units.
Cook said Apple should have done a better job highlighting for analysts how inventory issues might lead to what seemed like an usually steep drop in iPad sales.
"IPad sales came in at the high end of our expectations, but we realized they were below analyst estimates, and I would like to proactively address, why we think there was a difference," Cook said on the call.
He explained that a year ago, the company had a hard time meeting iPad demand during the holiday quarter. As a result, a large number of iPad sales spilled into the March 2013 quarter, inflating those numbers.
The thing to keep in mind about Apple's sales figure of 16.35 million iPads is that the company counts a product as sold when it sells it to a partner, like Best Buy, or directly to a consumer.
Apple noted on its earnings call that if you look at "sell through," that is the number of iPads sold by partners like Best Buy to consumers or directly to consumers from Apple, then the company moved 17.5 million iPads during the most recent quarter, down from 18 million for the same quarter a year ago.
"It's alarming," said Colin Gillis, an analyst at BGC Partners. "Even in the best case, it was down 3%."
Here's another way to look at iPad sales. In the first half of Apple's 2014 fiscal year (which ends in September), the company has reported iPad sales of 42.35 million units. For the same period a year earlier, the company reported sales of 42.08. That's a year-over-year increase of just 0.6%
(Again, that's official sales to channel partners and direct to customers, not "sell through" to customers.)
"Apple has proved many of the iPhone critics wrong by showing they could exceed smartphone revenue expectations," said Patrick Moorhead, of Moor Insights & Strategy. "They do need to figure out a different plan for tablets given they are losing share quarter by quarter to lower cost Android tablets."
So what is the plan? During the conference call, one analyst put that question to Cook.
"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."