There’s a hidden gem in Apple’s earnings — and it isn’t its services

Coverage of Apple’s second-quarter earnings has focused on the record slump in iPhone sales, rising sales of services and accessories, and a bullish revenue forecast for the current quarter.

But stock-watchers may have missed a hidden gem in the tech giant’s results: the iPad.

Sales in Apple’s tablet division soared 22%to about $4.9 billion in the first three months of 2019, the fastest pace of growth in six years, CEO Tim Cook said on the company’s earnings call. More than half of its customers were first-time iPad buyers, he added, which boosted the base of active iPad users to an all-time high.

The iPad’s “blockbuster quarter” saw it return to top-line growth in Greater China, Cook said on the call, and post “strong double-digit growth” in revenues across the Americas, Europe, Japan, and the rest of Asia Pacific. Moreover, its sales surged to a second-quarter record in Japan, and more than doubled in South Korea, Thailand, and Mexico.

The product line’s performance is striking relative to Apple’s other offerings. Sales of iPhones fell by 17% to about $31 billion in the second quarter, shrinking from 61% to 54% of turnover, according to Apple’s earnings report. Mac revenues slid 5% to $5.5 billion too.

Sales in the services business rose 16%, slower than iPad revenues. Only the wearables, home, and accessories segment — which houses numerous products including Apple Watch, Apple TV, Air Pods, Beats, and HomePod — expanded faster, with sales growth of 30%.

Strong tablet sales were “fueled primarily by the great customer response to our new iPad Pros,” said CFO Luca Maestri on the earnings call. The latest model’s resolution, processing power, and support of Apple Pencil and Smart Keyboard make it a popular replacement for laptops with both consumers and professionals, he added.

The iPad is also helping Apple to capture the enterprise market.

“Across 450 airlines, iPad is overwhelmingly the preferred solution for the pilot’s electronic flight bag,” Maestri said on the call, adding that it’s also used for ground operations and flight maintenance.

“One of the largest airlines in the world tells us that the adoption of iPad has cut maintenance delays in half.”

Still, the iPad’s appeal to first-time buyers could generate the most value for Apple. Adding more users to its ecosystem allows the company to flog more cables and covers, as well as hawk subscriptions to Apple Music, Apple News+, and the upcoming Apple Arcade, boosting accessories and services revenue.

The iPad’s resurgence could prove temporary, but as Apple races to offset plunging iPhone sales, it shouldn’t be ignored.

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