When Steve Jobs unveiled the iPad six years ago, it was the biggest thing since, well, the iPhone. But Apple’s latest news shows how far the shine has come off it.
Sales of iPads plunged by an astonishing 25% over Christmas, the company revealed in Tuesday’s quarterly earnings announcement. Holiday sales of iPads were down to their lowest levels in five years. Not since 2011, when the product was still relatively new, have they been so low.
In total, Apple sold 16.1 million iPads during the Christmas quarter, compared with a peak of 26 million two years ago. Yikes.
No wonder I was able to get a great deal on an iPad mini a couple of months ago. Nobody wanted them.
The fading of the iPad may be just a minor bump on Apple’s yellow brick road — or something more ominous.
The main culprit seems to be the growing trend toward oversized “phablets” like the iPhone 6s and 6s plus. They’re killing off the iPad. (Personally, I find them the worst of all possible worlds: too big for a phone and too small for a computer. They’re also overpriced: I’d rather pay a few hundred bucks for an iPad mini with a cellular connection than twice as much for an oversized iPhone. But, then, I’m hardly the typical Apple consumer. I do not have an iPhone, but I do have an Apple TV — since it first came out.)
Apple has never been afraid to cannibalize sales — the iPhone killed the iPod, if anyone can remember that far back — and it’s a habit of all successful, innovative companies. But it is nonetheless a cost, and detracts from growing sales in other areas.
Whether the new iPad Pro, a giant 13-inch tablet costing nearly $1,000, becomes more than a niche product remains to be seen.
The fading of the iPad may be just a minor bump on Apple’s yellow brick road — or something more ominous. The great danger constantly facing Apple is saturation. At some point, smartphones may become as exciting as digital watches.
I admit I’ve been surprised at how many people still get excited by a new, very expensive smartphone that is only slightly better than the very expensive smartphone they already own. I am not alone. But sales of iPhones appear to have reached a plateau for now, and CEO Tim Cook is predicting a decline in sales in the second quarter. Apple has to launch a new revolution every year or two in order to keep sales rolling.
We still don’t have any official numbers for sales of the Apple Watch.
Meanwhile, there’s the small matter of Apple’s balance sheet.
Cook boasted during the conference call that followed the earnings announcement that Apple has “the mother of all balance sheets, with almost $216 billion in cash, which translates to nearly $39 per diluted share.”
Well, sort of. But if we want a true picture, we also need to count the $165 billion in liabilities that are sitting on the latest balance sheet, and another $40 billion or so of off-balance-sheet commitments, and an unbooked tax hit that would be at least $30 billion if Apple tried to bring its “mother of all cash” back to the motherland, rather than leaving it in tax havens such as Ireland.
When you net it all off, it’s hard to see how much, if anything, Apple actually has in real free-and-clear cash that investors could put in their back pockets. That won’t matter in the short term, but it is an issue that affects valuation. And when I wrote about it last year, I was astonished at how many people — some of them alleged financial “professionals” — didn’t get it.
Counting assets and ignoring liabilities is called single-entry bookkeeping. Not a good thing.
Written by Brett Arends of MarketWatch