The iPhone 5 was the big news from Apple. But the rollout of a new iPad Touch was important in its own right. The big question it raises is whether Apple has left room in its product lineup for the much rumored iPad Mini.
With a 4″ Retina display, iOS 6, improved camera, and Siri, the Touch is more than ever a phoneless iPhone. In terms of functionality, there is plenty of room between the Touch and the existing 9.7″iPad for a smaller tablet with a 7″ or 8″ screen. The problem is pricing.
The new Touch, which will ship some time in October, is priced at $299 for a 32 gigabyte model and $399 for 64 GB. The new iPad starts at $499 for a Wi-Fi-only 16 GB model while the iPad 2 can be had for $399.
It would make little sense for Apple to introduce an iPad for less than $350. And depending on just how Apple chooses to configure this still totally hypothetical product, that price might be necessary if Apple wants to maintain its customary margins. The difficulty is that if Apple wants the Mini to be a smaller iPad without defeaturing it, the bill of materials would not be all that much lower than for the existing iPad. The display of a 7.9″ tablet is about two-thirds the area of a 9.7″. Assuming that Apple would want a Retina display with the same pixel density as its big brother, it would save some cost, but not all that much. The battery would be somewhat smaller and thus a bit cheaper. But the rest of the innards would cost just about the same.
But a $350 price tag would make the smaller iPad cost $150 more than either the Google Nexus 7 and the Amazon Kindle Fire HD, and that is potentially a very tough sell. Now Apple has lots of experience selling premium products at premium prices. But a price nearly 80% higher is an awful lot of premium. It have little doubt that the iPad would be better designed and better built than the Google or Amazon products with better software and a superior ecosystem, but Apple would have to convince consumers that it was vastly better.
Th upshot of all this is that I am a lot less certain than I was a day ago that Apple will go forward with an iPad Mini. We’ll see in a month or so.
Nothing has changed for me. During similar discussion I always said an 8″ (esp 4:3 as rumored) iPad at sub $300 was total nonsense when chasing Apple margins. So I feel vindicated on that one.
Also this isn’t about competing with Nexus/Fire. Apple never competes with no margin products. You don’t see any $400 dollar laptops from Apple either.
Finally I don’t see an 8″ iPad slotting under the iPad 2 in the lineup. I see it replacing the iPad 2 in the lineup. That is the mission.
This isn’t a low/no margin product to compete with Nexus/Fire, it is actually a healthy margin replacement of the iPad 2 as the entry level iPad.
I expect it won’t be a retina screen, but 1024×768 at the smaller size, driven by the same A5 as in the new iPod Touch. At $350 they will have a healthy margin. There will be lots of moaning about how underwhelming it is, and it will sell in ridiculously huge numbers.
It’s funny how a few years ago there was supposed to be no way a new product category could succeed between a phone and a laptop. What could you possibly need it for, people said. Here we are in 2012 talking about why Apple hasn’t yet come out with a product in between the new product category that nobody thought could succeed.
The more people know, the less they know.
Note that I said there is plenty of room in product terms for a smaller tablet. The problem is that Apple has left no room in its pricing structure.
“The big question (the iPod Touch) raises is whether Apple has left room in its product lineup for the much rumored iPad Mini.”
I was thinking the very same thing. If the rumors of the smaller iPad weren’t so very substantial, I would take today’s announcements as confirmation that Apple had no intention to sell a 7 (.85) inch tablet. However, since the rumors ARE so very solid, I’ll adopt the stance of “Defender” and assume that the 7(.85) inch tablet will come in at $399 and replace the iPad 2 in Apple’s tablet lineup.
That will be a huge disappointment to many, but it will be very much in line with Apple’s historic pricing policies.
BTW, the spelling for my Avatar is intentional. It’s from a low budget movie: “Defendor”
I don’t agree that a $350 price for a smaller iPad would be a tough sell. That appears to me to be a typical Apple product: priced well above the rest of the market yet still attracts its share of buyers because it’s a premium device that its users love. I would view a $350 mini iPad as business as usual for Apple, and I don’t believe they’ll leave that segment of the tablet market for Amazon and Google to own by themselves. Additionally Apple’s ecosystem is a strong lure for buyers.
Defendor said “There will be lots of moaning about how underwhelming it is, and it will sell in ridiculously huge numbers.” That may be exactly what happens!
“It would make little sense for Apple to introduce an iPad for less than $350.”
I agree, but being the provocature* that I am, here is a comment I just made this morning in the Bullish Cross Forum:
On Fast Money yesterday, one of the analyst was trying to defend his $600 price on AAPL in light of the $9 run up yesterday. He mentioned that the price of the iPad mini was likely to be fairly high due the the announced prices of the iPod Touch. On the surface this sounds reasonable.However:
(1) Size Matters – Generally it costs more to make things smaller – generally. That is why you can make a large, heavy notebook much cheaper than a light, thinner one.(2) Economies of Scale – How much will Apple’s economies of scale affect the price of the iPad mini? I would think that most of the components inside, except things like the battery, are identical to the regular iPad and therefore it would be reasonable that the component costs for both the regular iPad and the mini would be less expensive. I don’t know the number of iPod Touches that are sold compared to how many iPad minis Apple thinks it will sell, but this will be a factor as well. If the projected sales quantities of iPad mini is much greater than the qualities of Touches, then Apple can deliver a lower price point for it relative to the iPod Touch.(3) Marketing – Apple may be putting a premium price on the Touch just because of marketing considerations. That is Apple may be more interested in its price relative to the iPhone than its price relative to the iPad. The reason is that most people who will want the iPad mini will not spend much time, if any, comparing the mini to the Touch.*Provocutor: One who wants to be successful at everything he does and realizing that while you can’t please everyone, ticking them off is quite easy.
One last thought regarding the case for lower iPad mini price points:
IMHO, Apple, regardless of specs and margins, may decide to deal a death blow to what is left of the competition with great price points – say $249 to $299. Apple has 68%, up 6% from last year, of the tablet market, and 90+ percent of tablet Internet traffic. The only remaining tablet competitors, that Apple has, are in the smaller form factor segment. At lower prices, Apple would snuff out any remaining challengers. And over time, Apple could grow into their traditional margin objectives.
IMHO, this represents a once in a lifetime chance to become the PC of mobile computing and reign for 20+ years.
Apple already totally dominates tablets and they have done it without sacrificing margins. Chasing market share for its own sake just isn’t in Apple’s makeup.
Think Different!
IMHO, margins matter, but earnings matter more and market dominance matters most!
It seems that the rest of you think that Apple either will not bring out a tablet or it will be $350 because of the iPod Touch. IMHO, after watching the iPod section of the keynote, I feel strongly that pricing for the iPad mini does not necessarily have to be relative to it. IMHO, the iPod Touch is so small and has so many features, for its size, that it has to cost more to manufacture than the iPad mini if based on the current iPad and even less if based on the iPad 2. In addition, the number sold will be much greater than the Touch thus lowering the cost and price point.
Time will be the best analyst.
Just biding my time waiting to order a couple of iPhones on Friday at 2 AM.
For the iPod touch Apple is actually conflicted on price. The front page of the store says $199. Click on it and it says $299. Perhaps Apple showed their hand – squeeze $299 out of the iPod during the holidays, then drop it to $199 in January and move the iPad mini into the $300 slot.
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