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Apple Results: iPhone Blooms, But Whither The iPad?

Apple's third-quarter results were dominated by iPhone sales, but the company's iPad business continues to slide.
10 Cool Fitness Trackers That Aren't Apple Watch
10 Cool Fitness Trackers That Aren't Apple Watch
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Apple's earnings were all about the iPhone. The company shipped 47.5 million of its smartphone, a record for its fiscal third quarter. Nearly all the questions aimed at Apple executives during its call with analysts pertained to the iPhone, with a few about the Apple Watch tossed in for good measure.

iPad sales were merely a line item in Apple's results, and didn't draw much discussion. Let's rectify that.

Apple shipped 10.9 million iPads during the quarter. That represents an 18% drop in units and a 23% drop in revenue. Apple's iPad business peaked during the first quarter of 2014 with unit shipments of 26.4 million. Since then, Apple's iPad sales have seen nothing but steady year-over-year declines each quarter.

Even so, Apple CEO Tim Cook said he's still bullish on the iPad, especially considering the number sold to business customers.

Apple isn't alone in feeling some pain in the tablet market. The segment for tablets is expected to contract, with shipments of 207 million for the year, according to Gartner. That's down 5.9% when compared to 2014, though Gartner predicts things will pick up again in 2016.

"The tablet market is hit by fewer new buyers, extended life cycles and little innovation to encourage new purchases," Roberta Cozza, research director at Gartner, wrote in a July 6 report. "The tablet has become a 'nice to have' device, and there is no real need for an upgrade as regularly as for the phone."

Gartner now believes the replacement cycle for tablets is about three years. "We also expect the tablet market to reach a penetration close to 50% of households in mature markets by 2016," added Cozza. In other words, the growth curve is beginning to flatten.

Gartner says sales of large-screen smartphones have helped put the screws to sales of small-screen tablets, as well. The iPhone 6 Plus, with its 5.5-inch screen, is surely eating into potential sales of the iPad Mini, for example.

Is it time for Apple (and its investors) to panic? Cook is clearly calm and collected about the matter.

[Read more about the enterprise tablet market.]

Earlier this year, Cook admitted possible cannibalization and replacement-cycle woes might impact iPad sales. That is now bearing out. The company, however, has plans to revitalize its iPad business.

Apple is making significant improvements to the iPad through iOS 9.

It adds an improved keyboard and, for the first time, split-screen multitasking. Moreover, Apple is widely expected to debut a larger iPad Pro in the fall, with a screen pushing 13-inches. (Cook's reference to the future business prospects of the iPad was a small nod in this direction.)

iPads are showing up in more and more business, especially as point-of-sale devices. These changes will only make the iPad more appealing.

Apple's new iPad Pro will likely debut in October alongside refreshed versions of the iPad Air and iPad Mini. That will be too late to impact Apple's third-quarter numbers, but expect a healthy bounce during the fourth quarter.