Apple Inc. iPad Boom Is All Smoke And MirrorsAuthor: Mary MacGowanLast Updated: April 20, 2020 Apple Inc. surprised Wall Street on Tuesday with strong earnings, but the talk of the town wasn’t better sales, it was the firm’s iPad. The table became a unit shifter in the three months through June, recording its first increase in sales in more than three years. It’s certainly a nice story, but there’s no evidence it means anything to Apple.In its earnings report for the three months through June, the firm showed iPad sales of 11.4 million. That’s up from 9.95 million in the same three months of last year. Apple reveals sales numbers for the tablet as a group and doesn’t break them out in iPad Pro sales or iPad Mini sales.The reaction to the 15 percent increase of sales has been, for want of a better word, effusive. We’ve had the uptick declared a revival, and even a Renaissance. That might be jumping the gun a little bit. Apple is doing well, but there were reasons to expect an increase in tablet sales. There are also reasons to heavily discount them as a function of the stock price.iPad price cuts may have driven salesOne thing we don’t know about the boom in the iPad is what the earnings impact was. Though it’s clear that the firm has managed to boost sales, it may have taken a hit on margin in order to do so.We know that Apple Inc. did decide to cut the price of its base iPad recently. The firm now sells a 9.7 inch iPad for just $329. It has similar form and functionality to the iPad Air 2 that it replaced. It is, however, a whole lot cheaper.Revenue at the iPad segment is up just two percent suggesting that there may have been a margin hit.If those price drops have not affected margins, then Apple is onto a winner with its iPad growth. If, however, the firm has taken a hit on margins, it’s not going to be making an additional profit from increased sales.The price drop may, in fact, be the only thing driving sales of the new iPad. If that’s the case then Apple stock watchers shouldn’t expect to see the growth in sales repeated every year from now on.The drop on iPad sales is, by now, well understood. Tablets have minimal use cases for most environments. They’re consumption tools and little else.Apple Inc. iPad sales are truly marginalCupertino boss Tim Cook likes to present different segments by comparing them to the Fortune 500. (That said in a twist on Tuesday he said services was the size of a Fortune 100 firm). The iPad is certainly on that level, but it’s not the space that drives Apple stock growth.In the quarter just reported, iPad sales made up a grand total of 11 percent of Apple’s entire revenue. If it can keep up a 15 percent year-on-year growth rate, that could could much larger. Because Apple just slashed the average selling price, however, that’s something to be skeptical of.On top of that if you subscribe to the Halo theory of Apple products, iPad sales are even more marginal. The Halo idea states, basically, that buying one Apple product makes you more likely to buy another.Because of the nature of the firm, that makes everything from the Apple Watch to the Mac and even the iPad an accessory to the firm’s smart phone. Unless the company can prove that this school and business sales model is a substantial change, there’s no reason to see the iPad as anything but an iPhone peripheral.That’s not a problem for Apple right now. Tim Cook has made some insane profits from iPhone peripherals. It means that judging Apple as a lot of separate businesses, as Tim Cook likes to do, is a distraction more than anything else.Apple is a smart phone companyIt seems certain that Wall Street knows that the iPad story is a marginal one, and the increase in sales is more of a tech world fetishism than anything else. That’s fair enough, of course. The tech world is all about material culture and trying to predict the next idol that will descend from the Apple Inc. Spaceship.What really matters to those with money in Apple stock, however, is smart phone sales. In an excellently bland and realistic report from Needham, Laura Martin explained her bullish, non-iPad centric model for growth.In her summation Apple is a smart phone seller with a competitive advantage over everyone else in the market. She expects the global smart phone business to grow over the coming years. As Tim Cook’s firm is ahead of the competition, it should pick up an out-sized share of that extra growth.That’s a strong case for betting on Apple stock. If the firm continues to do what it does well, it’s likely to see growth in sales. That’s a thesis that doesn’t rely on the iPad to replace the laptop all over again.Investors who were burned by that idea before should be wary of “disruption” running the stock again.Here’s what’s driving Apple stock on WednesdayThough half of the headlines might have pegged Apple’s earning’s growth to the iPad, the other half set it at the feet of a phone that doesn’t exist yet. The iPhone 8 release date was the real headline in yesterday’s report.By guiding for relatively high revenue in the fourth quarter, Wall Street seems certain Tim Cook can deliver his high-price, high-margin smart phone in September. That would be an incredible achievement for the firm.In recent weeks almost every analyst on Wall Street has become convinced that Apple was facing delays. Though we know the usual rumors came from supply chains in Taiwan, there were an unusual number of leaks from inside Cupertino this time around.Despite those leaks, it now seems as if the iPhone 8 release date will be on time. That appears to be what’s driving stock ahead of the market opening. Whether that’s fairly valued or not is a very different question.At time of writing Apple stock was selling for $159.79 on the pre-market. If it opens close to that price, it will mark an all time high for the firm.