Apple beats estimates, but pressure's on the Watch
Apple (AAPL) announced fiscal second quarter revenue and earnings Monday evening that beat analyst estimates and sent shares up more than 1.8 percent in after-hours trading. Sales of $58 billion and net income of $13.6 billion, or $2.33 per diluted share, handily passed the $56 billion in revenues and $2.16 per share that Wall Street expected.
CEO Tim Cook in the earnings release said the company had its "best March quarter results ever."
Cook pointed specifically to sales of the iPhone, Mac and App Store, the last of which brought in almost $5 billion in the quarter. Notably absent from mention was the iPad, whose sales continue to decline. This CBS MoneyWatch graphic shows unit sales of the iPhone, iPad and Mac, with thin black lines showing the trend for the first two.
Again, the iPhone has buoyed Apple's fortunes. Yes, unit sales were down, but that's a normal pattern between the holiday shopping quarter and the first three months of the following calendar year. This time, unit sales dropped 18 percent, compared with a lag of 14 percent last year and 22 percent the year before. Given the unprecedented volume of phone sales during the previous quarter, an 18 percent drop is hardly bad news.
Sales of iPads, however, dropped off 41 percent from the previous quarter, compared to a 37 percent drop last year and only 15 percent the year before. Any hope of the tablet line taking off to produce another steamroller is fading fast.
It may be that people have found phones -- particularly with the larger screens that the industry has widely adopted, and that Apple finally implemented in the iPhone 6 -- reduce the need for a tablet. The original Steve Jobs pitch of a device that stood between a computer and a phone may not have the legs the company hoped.
That's why Apple Watch is critical to the company. Selling a companion device would mean additional revenue directly tied to the popularity of the iPhone and the chance to find a secondary growth engine, rather than pinning everything to the phone.