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iPhone sales boom but iPad disappoints Wall Street

Gregg Keizer | Oct. 29, 2012
Apple on Thursday announced record revenue on the back of booming iPhone sales, but for the second quarter in a row iPad sales came up short of Wall Street's expectations.

More than once Cook declined to forecast when iPhone supply and demand would reach a balance, saying only that the latter was "extremely robust" and that production output had "improved significantly" since early October.

The iPad missed Wall Street's estimates by a large margin, selling 24% fewer units than predicted. But analysts knew bad news was brewing: On Tuesday Cook said that Apple had sold its one-hundred millionth iPad two weeks earlier. Analysts did the arithmetic and quickly backed off earlier projections.

But even off the Street's forecast as it was, the quarter was the third-best ever for the iPad, with the 14 million coming in under only the previous quarter's record of 17 million and the 2011 fourth quarter's of 15.4 million.

The iPad's $7.5 billion in sales dropped the tablet's contribution to the Apple's total revenue from 26.2% in the second quarter to 20.9% in the most recent.

Cook defended iPad sales, saying that the 14 million was above the company's own prognostications and that Apple had stuffed the pipeline the quarter before with over 1 million additional tablets.

But he also admitted that the rampant rumors of an impending smaller iPad, which Apple unveiled this week as the iPad Mini, made consumers pause.

"It's clear that customers delayed purchases of tablets due to new product rumors and this intensified in August and September," Cook said. "Some of that was anticipated and some of it I wish wouldn't occur. But it did occur."

The holidays will be a test for Apple, with the Mini's smaller size taking it into uncharted waters. Some analysts see it as Apple's toughest sell in years because buyers may balk at the $329 price when other similar-sized tablets from Amazon and Google cost $199 or less.

Oppenheimer pre-empted questions about the Mini's price when he answered an analysts question with what sounded like a script. As he talked he used the word "aggressive" twice to describe the $329 price tag.

"All these new products, and the iPad Mini too, obviously, are at their most expensive point [to make]," said Gottheil. "Apple's saying they packed a lot more stuff in the new products, and were aggressive on the iPad Mini. I believe it."

The iPad's ASP (average sales price) also dropped, noted Gottheil, to $535, down from $570 the quarter before, indicating that consumers were selecting lower-priced iPads, or more likely, buying more of the $399 iPad 2.

A year ago, before Apple decided to sell the older iPad at a discount when it introduced the new iPad in March, the iPad ASP was $617.

The iPad Mini will probably eat into the ASP, too. "There will be some cannibalization," predicted Gottheil of buyers deciding for the Mini rather than the larger, pricier iPad. He estimated that the cannibalization rate would run between 20% and 25%, meaning out of every ten consumers who decide to buy an iPad, between two and three will choose the Mini.


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