IBM’s lawyers put the breaks on IBM’s slow innovation processes, according to Forbes columnist Peter Cohan, which is one reason for the stagnating profits coming from both companies and their need for the partnership that may show Apple’s CEO is simply no Steve Jobs.
Innovation, the Apple trademark, may be a problem for the company. And IBM’s slow innovation process is something they seek to develop with what is left of Apple’s rep for innovative products.
But is it all enough, you may wonder.
Apple Inc’s deal with IBM was important to establish itself in the Tablet market, according to NASDAQ.com.
The company sold 13.28 million iPads this quarter, on its way to earning $1.28 a share on $37.4 billion in revenue. Gross margins came in at 39.4%, helping the company beat the bottom line, but the top line miss (analysts were expecting $38.03 billion) is due in part to exceptionally weak iPad sales, a fact CEO Tim Cook noted on the call.
“iPad sales met our expectations but we realized they didn’t meet many of yours,” Cook said on the call, noting the company saw a reduction in channel inventory, as well as “market softness in certain parts of the world,” most notably a 5% decline in the U.S. market per research firm IDC, and a decline in the Western European tablet market in the June quarter.
For the current quarter, the company sees revenue in a range of $37 billion to $40 billion, below consensus of $40.6 billion. Gross margin is seen in a range of 37% to 38%.
Cantor Fitzgerald analyst Brian White, who has a $123 price target noted that the overall iPad market is still weak, though there are bright spots around the world. “During the call, Apple called out strong year-over-year iPad sales growth in developing markets,” White wrote in the note. “For example, Middle East was up 64%, China was up 51%, and India was up 45%.”
Though Cook tried to put a positive spin on it, saying that usage is more important than sales, citing data from ChangeWave (iPad Air had a 98% customer satisfaction rate, and iPad Mini with retina display had a 100% customer satisfaction rate), his comments later in the call about the deal with IBM are encouraging, as the iPad moves into enterprise.
He noted that penetration in business is low, at 20%, according to IDC, compared to 60% for notebooks, and was one of the reasons why Apple teamed up with IBM.
“And so we think that there is a substantial upside in business,” Cook said on the call. “And this was one of the thinkings behind the partnership with IBM that we announced last week. We think that the core thing that unleashes this is a better go to market, which IBM clearly brings to the table, but even more importantly apps that are written with Mobile First in mind. Not all but many of the enterprises apps that have been written for iPad have been essentially ports from a desktop arrangement and haven’t taken full advantage of mobile.”
The tablet market is still expected to surpass the PC market, with Gartner expecting 350 million tablets sold in 2018, compared to 315 million PCs currently. Apple still believes that the tablet market will continue to surpass the PC market, but the IBM deal will speed that adoption up, particularly in the enterprise, as Apple readies new products for later this year and next year.