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80% of reduced iPad shipments attributable to channel inventory decline

post #1 of 84
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Apple drew down its iPad channel inventory by 1.9 million units during the June quarter, accounting for the lion's share of the year-over-year decrease the company saw in iPad shipments.

iPad mini


iPad shipments were down for the first time ever in the June quarter, sliding 14 percent to 14.6 million units. The numbers are partially attributable to the fact that Apple launched a third-generation iPad in March of 2012, while no iPad update has yet to arrive in 2013.

"We had just announced the third-generation iPad, which was our first iPad with a Retina display," Apple Chief Executive Tim Cook said. "We had announced it in March, and so that was our first full quarter."

But in addition to a tough comparison from 2012, Apple has also been working to draw down its channel inventory, Cook revealed on Tuesday. Specifically, he said iPad inventory was drawn down by 1.9 million units during the quarter.

That reduction in channel inventory accounted for 80 percent of the 2.4 million less iPads Apple sold this year, Cook noted. He also highlighted stats that show the iPad accounting for a whopping 84 percent of Web traffic from tablets.

"If there are lots of other tablets selling, I don't know what they'e being used for," Cook said. "Because that's a pretty basic function, is Web browsing."

iPad sales to education also saw record highs in the June quarter. And Cook noted that both the iPhone and iPad are finding considerable success in the enterprise.

The CEO said he's not fazed by the drop in iPad sales, characterizing himself as "really happy" with the tablet's performance in June, and stating the year over year drop "was not a surprise to us."
post #2 of 84
Makes senses, a few months after the ipad 3 launches it was normal to have lots of units in the channel. Now we are a few months away from refreshes, so inventory is low.

So the mini did compensate 1tongue.gif

What drove down the stock from its high in the AH is they hint that launches will happen in October instead of september. imo that doesnt meant we wont have something lauching before, but it does confirms there will be something in october.
post #3 of 84
Oh, okay. Had me worried there for a minute.

Forgot about the whole no new iPad in March thing, too.
post #4 of 84
One reason is old iPads still work very well. Unlike iPhone, iPad users do not feel the need to upgrade.
post #5 of 84
Quote:
Originally Posted by herbapou View Post

Makes senses, a few months after the ipad 3 launches it was normal to have lots of units in the channel. Now we are a few months away from refreshes, so inventory is low.

So the mini did compensate 1tongue.gif

What drove down the stock from its high in the AH is they hint that launches will happen in October instead of september. imo that doesnt meant we wont have something lauching before, but it does confirms there will be something in october.

 

What comment indicated October?

post #6 of 84
Quote:
Originally Posted by tzeshan View Post

One reason is old iPads still work very well. Unlike iPhone, iPad users do not feel the need to upgrade.

 

I'm guessing most growth is due to hand-me-downs; me iPad 2 works great, but I'll get a new one soon, and pass my iPad 2 to a family member.

 

iPads for everyone.

 

This is why iOS doesn't support multiple users.

post #7 of 84
Quote:
Originally Posted by Pendergast View Post

 

What comment indicated October?

 

CFO mention it

post #8 of 84
...fewer iPads..

Anyway, this seems like a new iPad is on the way.
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post #9 of 84
Quote:
Originally Posted by Pendergast View Post

What comment indicated October?
Cook and Oppenheimer mentioned October but that was in reference to the next time they would be able to disclose things to analysts. In other words, we're not discussing new stuff until the next earnings call which is in October.
post #10 of 84
Quote:
Originally Posted by Rogifan View Post


Cook and Oppenheimer mentioned October but that was in reference to the next time they would be able to disclose things to analysts. In other words, we're not discussing new stuff until the next earnings call which is in October.

You're sure? How often do they discuss new products in earnings calls?

post #11 of 84
Quote:
Originally Posted by ankleskater View Post

You're sure? How often do they discuss new products in earnings calls?
I don't remember what the question was but Oppenheimer's answer clearly meant he could talk about it in the next earnings call. Oppenheimer doesn't talk outside of earnings calls does he?
post #12 of 84
Quote:
Originally Posted by Rogifan View Post


Cook and Oppenheimer mentioned October but that was in reference to the next time they would be able to disclose things to analysts. In other words, we're not discussing new stuff until the next earnings call which is in October.

 

oh, this could still mean we get launches in september indeed.  I need to find is exact words

 

Update:  yep, he actually said it will be done in october, so september is where the launches will take place. CNBC had this one wrong, they told launches would not happen until october.


Edited by herbapou - 7/23/13 at 3:44pm
post #13 of 84
The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.
post #14 of 84
Quote:
Originally Posted by tzeshan View Post

One reason is old iPads still work very well. Unlike iPhone, iPad users do not feel the need to upgrade.

The first gen iPads won't run iOS 6, but the iPad 2's a still great, it's just more for the budget conscious market that doesn't need Retina displays. I'm sure a bunch of schools buy them.

post #15 of 84
Quote:
Originally Posted by joebloggs View Post

The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.

 

I think Apple has always count units in the channel as sold units.  I know fans here are always saying Apple numbers are sold units, but hey, fanbois will be fanbois. Most the of number is sold units and units in transit indeed, but its never 100% sold units.

post #16 of 84
Quote:
Originally Posted by joebloggs View Post

The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.

The people who made that distinction were idiots.

Apple reports sales to channel and sales to customer - i.e. online sales from the Apple store. Mostly to channel.
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post #17 of 84
Quote:
Originally Posted by joebloggs View Post

The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.

You're right the consensus here has always been Apple only reports sales to customers. Not retailers....

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post #18 of 84
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Originally Posted by geekdad View Post

You're right the consensus here has always been Apple only reports sales to customers. Not retailers....

There has always been a minority group of us repeatedly explaining that Apple reports shipments and not sales. We have repeatedly stated that the shipped v. sales argument was moot. But we were bashed, stomped and ridiculed as Android fans. 

post #19 of 84
Quote:
Originally Posted by herbapou View Post

I think Apple has always count units in the channel as sold units.  I know fans here are always saying Apple numbers are sold units, but hey, fanbois will be fanbois. Most the of number is sold units and units in transit indeed, but its never 100% sold units.
But doesn't Apple disclose the channel inventory and tell you the sell through? Does any Android or Windows OEM do that?
post #20 of 84
Quote:
Originally Posted by ankleskater View Post

There has always been a minority group of us repeatedly explaining that Apple reports shipments and not sales. We have repeatedly stated that the shipped v. sales argument was moot. But we were bashed, stomped and ridiculed as Android fans. 
Whether its shipped or sold, who besides Apple reports figures on a quarterly basis? It seems other companies like Samsung only do it when they feel like it and for certain products.
post #21 of 84
Quote:
Originally Posted by ankleskater View Post

There has always been a minority group of us repeatedly explaining that Apple reports shipments and not sales. We have repeatedly stated that the shipped v. sales argument was moot. But we were bashed, stomped and ridiculed as Android fans. 

I know...count me as one of the group. I believe a shipped item is a sale.........

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post #22 of 84
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Originally Posted by Rogifan View Post


Whether its shipped or sold, who besides Apple reports figures on a quarterly basis? It seems other companies like Samsung only do it when they feel like it and for certain products.

Really? Do you have data to back that up? I seem to recall AI reporting on Samsung quarterly reports of shipped items.....

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post #23 of 84
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Originally Posted by geekdad View Post

Really? Do you have data to back that up? I seem to recall AI reporting on Samsung quarterly reports of shipped items.....
Here's there Q1 press release. I can't find any sales/shipped figures.

http://www.samsung.com/us/aboutsamsung/news/newsIrList.do?news_ctgry=irnewsrelease&page=3&news_seq=&rdoPeriod=ALL&from_dt=&to_dt=&search_keyword=#
post #24 of 84
Quote:
Originally Posted by Rogifan View Post


Here's there Q1 press release. I can't find any sales/shipped figures.

http://www.samsung.com/us/aboutsamsung/news/newsIrList.do?news_ctgry=irnewsrelease&page=3&news_seq=&rdoPeriod=ALL&from_dt=&to_dt=&search_keyword=#

But you proved my point....you said Samsung and other companies do not report those sales.

You said:

"Whether its shipped or sold, who besides Apple reports figures on a quarterly basis? It seems other companies like Samsung only do it when they feel like it and for certain products."

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post #25 of 84
Quote:
Originally Posted by herbapou View Post

Makes senses, a few months after the ipad 3 launches it was normal to have lots of units in the channel. Now we are a few months away from refreshes, so inventory is low.

So the mini did compensate 1tongue.gif

What drove down the stock from its high in the AH is they hint that launches will happen in October instead of september. imo that doesnt meant we wont have something lauching before, but it does confirms there will be something in october.

 

He didn't say launches in October. He implied launches BEFORE October, which could then be discussed on the next call--which is scheduled for October.

post #26 of 84
Shipped isn't sold. HP shipped loads of their WebOS tablet and 200,000 were sent back from sellers as sale or return.
Plenty of companies get unsold stock sent back, this generally doesn't happen with Apple though as demand for great products is too great.
post #27 of 84
Quote:
Originally Posted by geekdad View Post

But you proved my point....you said Samsung and other companies do not report those sales.
You said:
"Whether its shipped or sold, who besides Apple reports figures on a quarterly basis? It seems other companies like Samsung only do it when they feel like it and for certain products."
Where in that press release does Samsung mention sales figures?
post #28 of 84
Quote:
Originally Posted by joebloggs View Post

The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.

 

I'm not sure why Tim said that remark about channel inventory making up the difference and no one asked for clarifications. In Q2 2013, the numbers were: 19.5M iPads sold, and 4.8M in channel inventory. This quarter Q3 2013, it was 14.6M iPads sold and 4.1M in channel inventory.

 

Q2 source: http://www.morningstar.com/earnings/51338386-apple-inc-q2-2013.aspx?pindex=4

Q3 source: http://appleinsider.com/articles/13/07/23/notes-of-interest-from-apples-q3-2013-conference-call

 

Can anyone clarify? Seems like the numbers don't add up. Where is the 1.9M from and how is it relevant (shipped vs sold)? 

post #29 of 84
Quote:
Originally Posted by herbapou View Post

oh, this could still mean we get launches in september indeed.  I need to find is exact words

Update:  yep, he actually said it will be done in october, so september is where the launches will take place. CNBC had this one wrong, they told launches would not happen until october.

This is why I was questioning it. Any mention of October should be assumed to mean the next quarterly conference call.

Likely products will be announced in the first half of September and be released in the end of September.
post #30 of 84
Quote:
Originally Posted by joebloggs View Post

The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.

Apple breaks out channel inventory, which would be "shipped but not sold... yet".

Usually Apple's channel inventory stays pretty flat, so when they report "shipped" numbers it generally is sold.
post #31 of 84
I blame IGZO.

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post #32 of 84
Quote:
Originally Posted by joebloggs View Post

The iPad 3 launch last year makes total sense for lower sales this year. But I question whether drawing down inventory had anything to do with it. I thought Apple counted actual sales to consumers, not stock entering the pipeline. That has been a distinction often made - that many of the droid makers count a product as "sold" as soon as Best Buy places an order. Unless Apple is now doing the same, drawing down channel inventory wouldn't have any effect on numbers sold.

 

As already noted, the common internet idea that Apple reports only end user sales, is incorrect.  They also report a sale the moment a shipment leaves to a retailer.  (Interestingly, Samsung reports that sale when it arrives at the retailer.  And Blackberry holds off until the shipment arrives and no return is assured.)

 

Here's what Apple counts in their quarterly reports:

 

  • Apple DOES count end user sales from their physical stores.
  • Apple DOES count online end user sales after they arrive to the customer.
  • Apple DOES count shipments to retailers and carriers as sales.

 

And what is not included:

 

  • Apple does NOT report shipments to their own stores as sales.
  • Apple does NOT include sales to online customers until they arrive. (Which is why presale numbers can be larger than reported sales for a little while if shipments are behind.)

 

For iPads especially, about half the time, sell-through to end users is more than what was sold to retailers, and the other half of the time, sell-through is less.  For example, in 3Q 2012, Apple announced 17 million iPad sales.  However, only about 15.8 million went to end users. 

 

 

This happens with every manufacturer.  There will be quarters where retailers buy more units that they can sell, followed by quarters where retailers need to buy fewer units because of their previous overbuy.

 

As you can see from above, another interesting tidbit is that more sales each year go into simply filling inventory channels for more sales outlets.   As shown below, by the end of this fiscal year, there will probably be over 4 million iPads and 12 million iPhones that were counted as sales since the beginning of time, but are actually just filling broader inventory channels.

 

post #33 of 84
Quote:
Originally Posted by KDarling View Post

As already noted, the common internet idea that Apple reports only end user sales, is incorrect.  They also report a sale the moment a shipment leaves to a retailer.  (Interestingly, Samsung reports that sale when it arrives at the retailer.  And Blackberry holds off until the shipment arrives and no return is assured.)

Here's what Apple counts in their quarterly reports:



 



[*] Apple DOES count end user sales from their physical stores.
[*] Apple DOES count online end user sales after they arrive to the customer.
[*] Apple DOES count shipments to retailers and carriers as sales.

 



And what is not included:



 




[*] Apple does NOT report shipments to their own stores as sales.

[*] Apple does NOT include sales to online customers until they arrive. (Which is why presale numbers can be larger than reported sales for a little while if shipments are behind.)


For iPads especially, about half the time, sell-through to end users is more than what was sold to retailers, and the other half of the time, sell-through is less.  For example, in 3Q 2012, Apple announced 17 million iPad sales.  However, only about 15.8 million went to end users. 




This happens with every manufacturer.  There will be quarters where retailers buy more units that they can sell, followed by quarters where retailers need to buy fewer units because of their previous overbuy.

As you can see from above, another interesting tidbit is that more sales each year go into simply filling inventory channels for more sales outlets.   As shown below, by the end of this fiscal year, there will probably be over 4 million iPads and 12 million iPhones that were counted as sales since the beginning of time, but are actually just filling broader inventory channels.





And Apple reports channel inventory, starting and ending.
post #34 of 84
It could also have something to do with market saturation, you know...
post #35 of 84
Quote:
Originally Posted by Rogifan View Post


Where in that press release does Samsung mention sales figures?

Just search here on Ai.....you will find all the reported Samsung sales along with the Apple sales. There have been NUMEROUS articles that have the information.

Here is one....

http://appleinsider.com/articles/13/07/03/samsung-galaxy-s4-reaches-shipments-of-20-million---report

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post #36 of 84
Quote:
Originally Posted by KDarling View Post

As already noted, the common internet idea that Apple reports only end user sales, is incorrect.  They also report a sale the moment a shipment leaves to a retailer.  (Interestingly, Samsung reports that sale when it arrives at the retailer.  And Blackberry holds off until the shipment arrives and no return is assured.)

Here's what Apple counts in their quarterly reports:



 



[*] Apple DOES count end user sales from their physical stores.
[*] Apple DOES count online end user sales after they arrive to the customer.
[*] Apple DOES count shipments to retailers and carriers as sales.

 



And what is not included:



 




[*] Apple does NOT report shipments to their own stores as sales.

[*] Apple does NOT include sales to online customers until they arrive. (Which is why presale numbers can be larger than reported sales for a little while if shipments are behind.)


For iPads especially, about half the time, sell-through to end users is more than what was sold to retailers, and the other half of the time, sell-through is less.  For example, in 3Q 2012, Apple announced 17 million iPad sales.  However, only about 15.8 million went to end users. 




This happens with every manufacturer.  There will be quarters where retailers buy more units that they can sell, followed by quarters where retailers need to buy fewer units because of their previous overbuy.

As you can see from above, another interesting tidbit is that more sales each year go into simply filling inventory channels for more sales outlets.   As shown below, by the end of this fiscal year, there will probably be over 4 million iPads and 12 million iPhones that were counted as sales since the beginning of time, but are actually just filling broader inventory channels.




Thanks for the detailed response.
post #37 of 84

Oh no, here we go again, another shipped vs. sold argument, you know this comes up waaay to much and frankly it's getting old. We should just have one thread, call it S vs. S, so we can post the thread link anytime someone brings it up in another.

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post #38 of 84
Quote:
Originally Posted by geekdad View Post

Just search here on Ai.....you will find all the reported Samsung sales along with the Apple sales. There have been NUMEROUS articles that have the information.
Here is one....
http://appleinsider.com/articles/13/07/03/samsung-galaxy-s4-reaches-shipments-of-20-million---report
Ok. But that's not official numbers from Samsung, or part of a quarterly earnings call. And it does prove my point that other companies release figures when they want to (i.e. when the numbers look good or there's some milestone met) not consistently every quarter like Apple does. Take Microsoft for example. They've never disclosed on a quarterly conference call how many Surface tablets they sold. Amazon never discloses how many Kindles they've sold; they just give percentage increases that are pretty meaningless when you don't know the actual numbers we're talking about.
post #39 of 84
Quote:
Originally Posted by Pendergast View Post

And Apple reports channel inventory, starting and ending.

... but note that they decline to explain how they arrive at it. It could be no more than a very educated guess. Still it's more than others do.
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post #40 of 84
Quote:
Originally Posted by KDarling View Post

As already noted, the common internet idea that Apple reports only end user sales, is incorrect.  They also report a sale the moment a shipment leaves to a retailer.  (Interestingly, Samsung reports that sale when it arrives at the retailer.  And Blackberry holds off until the shipment arrives and no return is assured.)

 

I am not sure about Blackberry. After all, the Playbook write-down was pretty significant.

 

Quote:
Originally Posted by KDarling View Post

...

This happens with every manufacturer.  There will be quarters where retailers buy more units that they can sell, followed by quarters where retailers need to buy fewer units because of their previous overbuy.

 

One major diff between Apple and other manufacturers: Apple Stores. This leads to a difference in the definition of channel inventory, and possibly the reason why some have insisted that Apple has been more transparent. 

Quote:
Originally Posted by KDarling View Post

As you can see from above, another interesting tidbit is that more sales each year go into simply filling inventory channels for more sales outlets.   As shown below, by the end of this fiscal year, there will probably be over 4 million iPads and 12 million iPhones that were counted as sales since the beginning of time, but are actually just filling broader inventory channels.

 

If I may add a point of consideration (to a rich and informative post), it's a bit misleading for Cook to use drawdown on channel inventory as the explanation for drop in iPad numbers. The fact is that units in shipment recognized as revenue is also an indication of a company's forecast for the coming quarter. Apple seems to be less confident about the current quarter than they were last year at the same time. Of course, a good explanation is that we are many more months removed from the launch of the last new iPad. But, is that all there is?

 

I think there remain two questions/points: There are now two iPad products rather than just one. Yet, Apple is selling fewer than one year ago. Second, iPad is supposed to be this amazing growth opportunity - a still new category that is cannibalizing the PC market (according to many if not all). Yet, Apple is selling fewer than a year ago and seems to be forecasting another downward trend for the current quarter. I don't think either observation can be explained by product cycle timing alone. If growth can only be sustained by product refreshes, I'd argue that it is possible the iPad growth cycle is slowing down fast, unless Cook cracks that China nut.


Edited by ankleskater - 7/24/13 at 4:21am
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