Apple shipped 16.35 million iPads in Q1 2014, a 16% decline year-on-year (YoY). Actual sell through units were reportedly higher, at 17.5 million, a 3% decline on the previous year.
This is not the first YoY decline in the iPad’s history, but it is notable in the light of growth from both the iPhone and the Mac. The former shipped 43.7 million in the first quarter, a 17% increase in YoY shipments, while Mac shipments reached 4.1 million units, a 5% YoY increase. iPod shipments dropped to 2.76 million units, less than half of their Q1 2013 unit volume. The company’s overall revenue in Q1 2014 was $45.6 billion, up 5% YoY.
Apple’s first quarter iPad results are in line with the sequential quarter on quarter declines experienced by many of its competitors, as 2013 year end tablet inventory levels restricted channel demand in first quarter of 2014.
iPad shipments took a similar YoY dip in Q2 2013, only to surge back in the second half of the year and finish at record highs. That record high 2013 finish in turn played a significant role in the first quarter 2014 shipment drop. Unlike in 2013, when Apple started the year with a backlog of orders for the new iPad mini, the 26 million iPad units that Apple shipped in Q4 2013 exceeded demand and left Apple with higher inventory levels than at the start of the fourth quarter.
Q4 2013 was the first time that Apple did a global iPad product release, shipping the new iPad Air and Retina Mini into all regions in the same quarter. When the company introduced the original mini in late 2012, it was a more limited release. The original iPad mini did not ship into China until early 2013, just in time for Chinese New Year. By contrast in 2014, Apple got the bounce from Chinese New Year in Q1 2014 but not the double impact of a fresh product launch as it did in Q1 2013.
Inventory fluctuations and product launch variations aside though, Apple’s first quarter results still raise some concerns regarding Apple’s ability to consistently deliver on unit growth in an increasingly price driven market. Competitors from the Android side, most notably Samsung, have eaten away at Apple’s market share over the past several years. Samsung shipped 13 million tablets in Q1 2014, up 42.8% from Q1 2013. Samsung had a smaller QoQ shipment decline than Apple in the first quarter, dropping 11% from 14.6 million units in Q4 2013.
Apple’s move to raise pricing when it introduced the Retina mini, widened the price gap between iOS and Android based tablets. In its Retina mini pricing decision, Apple opted for profit and revenue growth over unit growth, and that move is likely to have unit share repercussions.
The upside of the pricing move however is extremely positive for Apple and plays an important role in Apple’s overall financial performance. By boosting the Retina mini price, Apple narrowed the price gap between the Retina mini and the iPad Air, helping to drive sales back towards the 9.7-inch product. That in turn raises the overall iPad ASP, which narrows the price gap between the iPads and the Macbook Air, tipping some users back towards the higher revenue computer purchase. All of this contributes to Apple’s overall bottom line and the strong first quarter 2014 financial results.
Apple is uniquely positioned to take a more considered approach to tablet growth. With a huge global installed base of tablets, Apple will dominate this market for years to come, even if it slips out of first place in unit shipments. That installed base fuels spend across the Apple ecosystem, an increasingly important part of Apple’s overall financial performance. Apple clearly has its gaze fixed firmly on growing the overall brand, rather than any particular product category.