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Apple-IBM deal will save the iPad

Column Apple is right to target BYOD to turn around tablet sales
Fri Jul 25 2014, 08:00

V3 and The INQUIRER editor Madeline BennettAPPLE'S LATEST RESULTS were met with the predictable rush of criticism generally aimed at large firms that everyone can't wait to see toppled from their pedestals.

Apple posted another set of impressive financial results for its fiscal third quarter, with revenue of $37.4bn, up from $35.3bn in the same quarter in 2013, and a whopping $7.7bn in profit - around $85m each day - up from $6.9bn. But all the focus was on the firm's slight dip in iPad sales, which has been hailed by some as the beginning of the end for Apple.

While the iPad decline is an area that needs to be addressed by Apple, it's clearly winning in other parts of the business. iPhone sales for the quarter came in at 35.2 million - down from the record 43.7 million handsets the firm sold in its second quarter, but up 13 percent compared with the 31.2 million Apple shipped for the same period in 2013.

Speaking on a conference call to release the latest results, CEO Tim Cook also noted impressive 55 percent growth in the BRIC countries over the same period, and it's in these regions that Apple still has the potential to see further growth, both for smartphones and tablets.

Apple also did well on the Mac side, boasting an increase in sales from 3.8 million in the third quarter of 2013 and 4.1 million in the second quarter this year to 4.4 million of its desktops and laptops, an impressive feat when the PC market is generally on the decline.

Cook held off mentioning the iPad sales until the end of the call, as the 13.3 million sold fell short of analyst expectations by more than one million units. iPad sales were down eight percent from the 14.6 million tablets Apple shifted in the same quarter last year, and dropped off significantly from the 16.3 million sold in the second quarter this year.

While Apple was keen to point out that the iPad is seeing growth in developing markets - for example a 64 percent year-over-year increase in the Middle East, 51 percent in China and 45 percent in India - this can't hide the overall headline decline.

Cook predictably blamed the decline on external circumstances, rather than anything Apple is doing wrong with its tablet strategy.

"iPad sales met our expectations but we realised they didn't meet many of yours," he told investors on the call. "Our sales were gated in-part by a reduction in channel inventory and in part by market softness in certain parts of the world."

Cook also cited IDC's latest estimate of a five percent overall decline in the US tablet market across the quarter, accompanied by a drop in the Western European tablet market, as evidence that this isn't an issue with the iPad per se, but a market conditions problem.

The iPad numbers would be worrying for investors if the firm was resting on its past glories in tablets and assuming sales will pick up based on ongoing love for the Apple brand and slightly cheaper price tags on offer via the iPad Mini. But Apple is clearly aware of the situation and has already signed an enterprise deal with IBM, which will see the iPad further embedded in the workplace. The importance of this recent deal now seems even clearer, as Apple attempts to reinvigorate its tablet business.

As Cook explained: "We think our partnership with IBM, providing a new generation of mobile enterprise applications, designed with iPad's legendary ease of use and backed by IBM's cloud services and data analytics will be one such catalyst for future iPad growth.

"We're very bullish about the future of the tablet market and we're confident that we can continue to bring significant innovation to this category through hardware, software and services."

So while some analysts are focused on the future threat a larger-sized iPhone might have on tablet sales, noting this could further decrease iPad sales, Apple has sensibly realised that its best potential for iPad growth lies in the enterprise. The two examples of iPad use the firm highlighted during the conference call were both firmly non-consumer. Apple instead chose to point out that Qantas Airlines has more than 15,000 iPads deployed, while the Swedish government has more than 100,000 iPads in use at local government offices across the country.

Apple also talked up its tablet's popularity in the education sector, where the iPad has an 85 percent share of the US tablet market, with 13 million iPads sold to education customers globally.

Enterprise mobility and bring your own device (BYOD) are still huge drivers for business IT spend, with thousands of companies still in the process of shifting to this new way of working. The reality is that business users want the mobility aspect, but they also want screens large enough to support their standard productivity and enterprise apps. Anyone who has tried to work on a spreadsheet or CRM system via a 5in device will no doubt agree with this point.

And by teaming up with IBM, which will start selling iPads into business markets like retail and health, bundled with apps to cover the security, device management and business analytics side of things, Apple is ensuring that wherever a BYOD tablet sale is up for grabs, it's in the prime position to snatch that deal from the likes of the Microsoft Surface.

So don't expect the iPad to go the way of the iPod just yet; the Apple-IBM deal looks even cannier in light of this latest set of results and could be the remedy Apple needs to turn around sales for its upcoming quarter. µ


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