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Apple's fiscal third quarter results were a mixed bag: iPhone sales dazzled, while iPad sales fizzled. Apple's third-quarter profit dropped 22 percent year-over-year, but that was in line with what Wall Street analysts expected.
In Apple's third-quarter earnings call Tuesday, Apple CEO Tim Cook deflected several loaded questions from analysts about challenges to Apple's business, characterizing them as mere bumps in the road on the way to continued success.
Following are five tough questions Cook faced during Apple's third-quarter earnings call.
1. Has the high-end smartphone market already peaked?
Apple's iPhone sales were a huge bright spot. It sold 31.2 million iPhones during the third quarter, while Wall Street analysts were expecting around 26.5 million.
Yet despite this success, there are concerns that the high-end smartphone segment is saturated. Persistent rumors about Apple rolling out a low-end iPhone suggest the company is reacting to the need for products in this segment.
Asked to comment on this, Cook instead talked about Apple's opportunities in distribution. These include carrier relations, expanding its retail and online stores, and expanding its indirect channels, Cook said.
"Our key catalyst always will be new products and services, both existing categories and new ones," Cook said.
Apple also has a market expansion opportunity in the enterprise, Cook said.
"We are at the very front end of that," Cook said. "I think we have lots of growth opportunities. I don't subscribe to the common wisdom that the high-end smartphone market has hit its peak."
2. Why are iPad sales slowing down?
Apple sold 14.6 million iPads during the quarter, well short of Wall Street's expectation of 18 million.
iPad sales declined by 2.4 million units during the quarter compared to last year. But, 80 percent of that, or 1.9 million units, was due to channel inventory changes, Cook said.
Apple reduced iPad inventory by over 700,000 units during the quarter. In last year's quarter, Apple saw an increase of 1.2 million iPad units, because that was the first full quarter after the launch of the third-generation iPad, Cook said.
So when all of these factors are accounted for, iPad sales actually only dropped 3 percent during the quarter, Cook said.
"We hit within the midpoint of the range we expected on iPad unit sales. It was not a surprise to us," Cook said.