Apple Inc. (NASDAQ:AAPL) reported better than expected earnings on Tuesday. Shares jumped about 4% in the after-hours trading session.
Although some have characterized this earnings report as meaningless, there are definitely a few key takeaways for shareholders.
Positive: Apple sold a lot of iPhones
Last week, I speculated that Apple could miss earnings. The company is still tremendously dependent on the iPhone for its revenue and profit, and rival smartphone companies have been posting disappointing quarters.
Apple Inc. (NASDAQ:AAPL)’s chief rival, Samsung, released its latest flagship smartphone — the Galaxy S4 — in April. From a purely technical standpoint, the S4 is a far better phone than the iPhone 5, boasting a full HD screen, a faster processor and better camera.
Still, despite refreshing its phone, Samsung warned of a disappointing quarter in June. The Galaxy S4 had a strong launch, but demand rapidly cooled. Officially, Samsung will report its quarterly results this Friday, and investors will get a better sense of how its Galaxy handsets are selling.
Yet, while Samsung struggles, Apple continues to sell phones. The 31.1 million iPhones sold was better than the 26 million analysts had been anticipating.
Negative: Apple didn’t sell that many iPads
However, Apple Inc. (NASDAQ:AAPL)’s iPad sales came up short. The company sold just 14.6 million iPads — 20% less than what analysts had expected.
Apple blamed the lack of a new model for the disappointing sales. Last year, Apple’s iPad 3 was still new, and consumers were just getting their hands on a Retina-display equipped device.
One quarter doesn’t necessarily make for a trend, but if it takes a completely new model to grow iPad sales, perhaps the market for iPads is saturating faster than observers had anticipated. Gartner was expecting the tablet market to grow 70% this year; perhaps that estimate is overly optimistic.
Of course, Apple Inc. (NASDAQ:AAPL) is seeing tablet competition like never before.
Microsoft Corporation (NASDAQ:MSFT) took a $900 million write-down last week on the Surface RT. The Window-maker has cut the price of its competing tablet by 30%, down to $350, while Apple continues to sell the full-sized iPad at $500. Microsoft Corporation (NASDAQ:MSFT) has also targeted the iPad in an aggressive advertising campaign.
Still, I think Apple investors should be more concerned with tablet saturation than with the company’s competitors.
Surface RT has been received poorly mostly due to its lack of apps. Even nine months post-launch, Microsoft’s app store continues to lack basic apps such as Facebook Inc (NASDAQ:FB).
Microsoft Corporation (NASDAQ:MSFT) certainly has the money to keep fighting the iPad, and based on the company’s recent reorganization, it seems like the Windows-maker isn’t giving up just yet.
But I think that’s a bigger strike against Microsoft Corporation (NASDAQ:MSFT) than it is a threat to Apple Inc. (NASDAQ:AAPL). The company could continue to waste billions pursuing a failed mobile strategy, while Apple’s iPad remains dominant.
Positive: new products are coming soon
Above all, Apple is a consumer products company. The iPod pulled the company back from the abyss, while the iPhone and iPad have powered the company’s tremendous growth over the last few years.