As a general rule, investors seemed happy with Apple's second-quarter earnings report, released after Monday's market close. But the results for the iPad were a disappointment.
Apple sold 12.6 million iPads in the quarter, generating $5.43 billion in revenue. Impressive numbers? Not exactly. Unit sales were down 22% from a year ago and missed the average Street estimate of sales of 13.9 million units. Revenue was down 28.7% from a year ago.
Moreover, this is the fourth quarter in a row where year-over-year results for the iPad were lower. And, for two quarter out of the last three, revenue for Macintosh computers revenue was greater than iPad revenue.
The disappointing results were probably why Apple's stock peaked at $136 after hours as soon as the earnings report came out at 4:30 p.m. ET., well above Apple's record intraday high of $133.60, reached earlier in the day. The shares were at $134.56 at 6:10 p.m., still good for an all-time high. The shares closed at $132.65 in regular trading and are up 20.2% this year.
The why of the decline is complicated. The path to the solution is murky.
The iPad is getting cannibalized by the iPhone 6 Plus with its large screen and by the Mac computer, especially with its lightweight models. Even CEO Tim Cook conceded this point on Monday's earnings call.
There's an inventory issue. Apple can't seem to produce as many iPads as the market wants, Cook said, in part because of the huge demand for the iPhone 6 Plus, which has its own inventory problems. Apple has been struggling to get this figured out.
The last problem is the decline in tablet sales overall, Unit sales world-wide were down 3.2% in calendar 2014, according to International Data Corp. (IDC). It was the first year-over-year decline for tablets since Apple created the product category in 2010.
The iPad suffered because of iPhone 6 and iPhone 6 Plus sales, IDC said in a Feb. 2 report. But it still had a 27.6% share of the tablet market, well ahead of second-place Samsung's 17.5% share
Fixing the iPad's decline may take a little while, although Cook said he was confident the situation would stabilize itself soon.
One help may be an iPad with a 12.9-inch screen. That's supposedly is in the works, but no one knows when it will come, and Cook wasn't asked about the idea on the call.
Second is the growth of a market it's trying to develop with IBM and Big Blue's Mobile First cloud platform. The partners want to develop "business-grade" iOS aps
The partnership was announced a year ago and is slowly building. Cook said he believes the partnership and more business-focused aps will help the iPad situation. But he added he wouldn't predict when a turnaround will come.
Cook didn't say how much competitive pressure that Microsoft's Surface Pro 3 tablet is having.
Apple's overall results were strong. The company earned $13.6 billion, or $2.33 a share, on revenue of $58 billion. Revenue was up 27% from a year ago. Earnings were up 40%.
The company ended the quarter with $190 billion in cash and investments on its balance sheet -- 72% of total assets. It announced it is expanded its capital return program to $200 billion. It will buy in $140 billion in shares, up from $90 billion, and boost its dividend boost its dividend 11%. It declared a dividend of 52 cents a share payable May 14 to shareholders as of May 11.
