This week was a classic "good news, bad news" cycle for Apple. On Monday, the company announced record second quarter profits, led in large part by Chinese enthusiasm for the iPhone.
“We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever,” said Tim Cook, Apple’s CEO. “We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”
Four days later, however, research firm IDC reported that Apple had experienced a 22.9 percent drop in the number of tablets shipped from the previous year. The news was not entirely bad: Apple's sale of 12.6 million iPads constituted 26.8 percent of the tablet market, making the tech giant the market leader in that segment.
Big iPhones, Big Sales in China
Analysts pointed to a number of factors that contributed to the iPhone's strong performance in China. First, Apple established a strategic partnership with China Mobile, the largest cellular company in China (and therefore the world).
Apple also benefitted from the fact that the Chinese New Year fell squarely in the middle of the quarterly earnings period. The holiday typically offers the same economic boost to retailers that Christmas does in the United States. Additionally, Apple has been expanding its physical presence in the country by launching 21 Apple stores just in the past year. Add in the enthusiasm of Chinese consumers for the larger screen sizes offered in the iPhone 6 and iPhone 6 Plus, and it's not surprising that Apple has seen a 70 percent year-over-year increase in handset sales.
But Whither the iPad?
Overall, the global market for tablet devices contracted 5.9 percent over the same quarter last year, with total shipments of 47.1 million compared to 50 million in the 1st quarter of 2014, according to IDC.
Analysts said there were several causes for the steady decline in tablet sales in general and the iPad in particular. First and foremost, the so-called "phablet," or oversize cell phone, is a direct competitor to tablet computers. For only a minor sacrifice in screen size, consumers can purchase a device that is just as powerful -- if not more so -- and sufficiently phone-like to make calling a reasonable experience. It is also possible to take photos using a phablet without looking quite as odd as someone holding up a toaster-size device.
At the other end of the scale, the newly revamped Macbook line competes with tablets by offering a much more powerful device in a form factor that is not much larger in size or weight. While there are numerous workarounds to make tablets function like computers, i.e., stands, detachable keyboards, etc., it's still not a natural use for the devices. For a moderately higher initial investment, consumers can get devices with much greater processing capability and storage, and an actual keyboard.
In the face of slumping iPad sales, the question is: Will Apple try to refresh and reposition the iPad line, or allow it to simply wither away in the face of the compelling market forces already at work?