Apple Q3: Cook Sees Big Potential With IBM Deal, iPad Sales Remain Challenged

Mac and iPhone sales remained a bright spot for Apple during its fiscal third quarter, despite continued challenges with the company's iPad.

Apple reported quarterly revenue up 5.9 percent from a year earlier to $37.4 billion, and the recently announced partnership with IBM could aid sales of the tablet by cracking open opportunities in the enterprise for not only the iPad but mobile applications, CEO Tim Cook said during an earnings call with analysts Tuesday.

Apple reported quarterly net profit of $7.7 billion, up 11.5 percent from a year earlier.

Sales of the iPhone in the quarter grew by 13.9 percent to 35.3 million. Meanwhile, iPad sales totaled 13.3 million, off 8.9 percent from a year earlier.

Although the company credited strong iPhone and Mac sales for its overall quarterly results, it also saw growth from other parts of its Apple services ecosystem, including a 25 percent gain in iTunes billings.

’Our theory when we first shipped iPad, that the tablet market would eventually surpass the PC, is still intact,’ Cook said during the earnings call. ’I just think we need to do some things to get the business side of it moving. I think we’re onto something (with IBM) that can really do that.’

While iPhone and iPad sales disappointed analysts, Apple attributed lackluster sales to an overall 5 percent decline in the larger tablet market and the fact Apple over the last three months has had few significant announcements and no major new shipping products.

’Apple penetration in enterprise is low,’ Cook said. ’But we think there is a substantial upside in business and this was part of the thinking with our partnership with IBM. We think that the core thing that unleashes this is a better go-to-market strategy that IBM clearly brings to the table and even more importantly with apps that are written with mobile first in mind.’

Many of the apps written today for iPads in the enterprise have essentially been ports from a desktop environment and didn’t take advantage of mobile, Cook said.

’We are excited to bring the iPad to business and partnering with IBM and seeing what that can do to sales and business, which I honestly think the opportunity is huge,’ Cook said. ’We win if we can drive our penetration number in the enterprise from 20 to 60. That’s what I’m hoping for.’

Under terms of the Apple-IBM deal, Cook said, developers will still be allow to sell apps directly to the enterprise.

’The big thing for us is getting the penetration up and getting our product iPhones, iPads and Macs in more people’s hands, and we think there is a huge opportunity in enterprise to do that," he said, adding that the business model between IBM and Apple is still evolving.

Apple has been steadily losing PC and tablet market share in the enterprise for almost two years. Apple's U.S. PC market share in the enterprise was 8 percent for the first quarter of 2014, down from 9.4 percent in 2013, according to IDC. Apple's iPad share in U.S. enterprises is falling even faster -- from 86 percent in 2012 to 76 percent in the first quarter of 2014, according to IDC.

PUBLISHED JULY 22, 2014