The logic of Apple's premium-priced iPad Mini
The bottom line: Apple wouldn't destroy its margins to make the iPad Mini more of a price competitor in the mini-tablet space.
On Tuesday, Apple unveiled its well-received holiday lineup of products and saw its stock continue to sink. Stock analysts are predicting that like Google, Apple will miss consensus estimates for the current quarter, mostly due to lower-than-expected iPhone sales and production delays for the iPhone 5. Apple reports its quarterly earnings after the bell tomorrow.
Read: Apple earnings preview: All eyes on iPhone, iPad
But now the analysts have some fresh meat, and are considering how the iPad Mini will impact Apple's fortunes, especially its pricing. The mini-tablet space is becoming a hot spot, one crowded with competitors. Apple couldn't afford to stay away, even if it cramped the product lineup.
At $329 the iPad Mini is just $30 more than the diminutive iPod Touch, which has the same A5 chip and twice the amount of memory. The iPad Mini, with a 7.9 inch display is $130 more expensive than Google's Nexus 7, which has half the memory of the iPad Mini but a sharper, similarly-sized screen and faster processor.
Hands on: Apple's $329 iPad mini
Apple could have come out with a $299 iPad Mini (with 8GB rather than 16GB of memory), but it would still be $100 more than a comparably configured Google Nexus 7 or Samsung Galaxy Tab 2.0 or 16GB Kindle Fire HD. The iPad Mini is thinner, lighter and has more apps, but for many users it won't be worth the extra $100.
As you would expect, Apple's executives played up the "amazing" and "incredible" design and capabilities of the iPad Mini during the unveiling Tuesday, taking shots at Google's Nexus 7 for its plastic shell and smaller screen area.
Read: Fact-checking Phil Schiller on iPad Mini vs. Nexus 7
Read: Apple's quest for love in the age of tablet
Apple chief designer Jony Ive spoke about the iPad Mini as an amazing design and engineering achievement. He said that iPad mini is not just a shrunken iPad, but rather a "concentration of, not a reduction of, the original" with "absolutely remarkable levels of fit and finish." In Ive's estimation, you should pay the premium because it has concentrated the essence of the bigger iPad, with nice curves, thinness, lightness and durability.
It may be that Apple's unibody aluminium packaging and the category-leading thinness and lightness are remarkable, but the higher price, slower processor and lower resolution screen will make it less attractive when customers think about parting with their dollars.
Read: Complete coverage of Apple's new iPad, IPad mini, iMac, Macbook and Mac mini
The bottom line is Apple would not destroy its margins to make the iPad Mini more of a price competitor in the mini-tablet space. Amazon likes to sell its Kindles at cost like they're credit cards for use at its stores, and Google is trying to make a market for Android devices and its advertising platform. Apple has trained Wall Street to expect high margins from its hardware.
Marketing chief Phil Schiller told Reuters, "The iPad is far and away the most successful product in its category. The most affordable product we've made so far was $399 and people were choosing that over those devices. And now you can get a device that's even more affordable at $329 in this great new form, and I think a lot of customers are going to be very excited about that."
Rhoda Alexander, director, tablet and monitor research for IHS, predicts that Apple's iPad Mini will find success. "The battle in the 7-inch space is highly spirited, with most of the other leading vendors already offering price-competitive products in this size range. IHS predicts Apple will successfully position the smaller iPad as a device that will be attractive and easy to adopt for both new and returning customers. This will spur rapid sales growth and provide tough competition for other companies contending in this size range," she said.
The iPad Mini will excite customers who value the Apple brand and are looking for something between the 4-inch iPhone 5 and a 9.7-inch iPad. Adding the iPad Mini to the lineup means some cannibalization of the larger iPad and iPod Touch will occur.
Google, Samsung, Amazon and other Android tablet-makers will lose some sales to Apple at the low end of the market, but are also attacking Apple at the high end with larger tablets. Google is expect to introduce a 10-inch Nexus tablet in concert with Samsung next week.
According to IDC, tablet shipments are exploding over the next few years, increasing from 117 million this year to 261 million in 2016, with Apple capturing about 60 percent of the market, followed by Google's Android platform and Microsoft's emerging Windows 8. The net effect overall is a rising tablet tide, and more choppy waters for Apple than in the past two years.
No doubt Apple will respond. Presumably a next-generation iPad Mini with an A6 processor and Retina display for the same price as today's version is on tap for mid-2013.
