Apple Inc. (AAPL) iPad: The Surrender

The iPad Mini Junior
The release of a new, cheaper iPad Mini is significant on two levels: First, what it means for the device itself, and second, what is signals for the company. On the device level, smaller tablets have come to represent about half of the tablets sold, according to research firm IDC. Jitesh Ubrani, an IDC research analyst, said: “Vendors are moving quickly to compete in this space as consumers realize that these small devices are often more ideal than larger tablets for their daily consumption habits.” Apple Inc. (NASDAQ:AAPL) is at a point at which it must either buy into the commoditization going on it tablets or choose to be the premium alternative. The decision to release a cheaper version suggests that the choice has been made.

Unlike in smartphones, where subsidies mean that the price differentials are relatively small, tablet prices vary significantly. What investors should watch is whether Apple Inc. (NASDAQ:AAPL) offers an ultra-cheap iPad Mini and still sells those at current price points. If not, you will need to be aware of margins on the new devices and what impact the shift lower has on the bottom line. If available, the sales mix will be the figure to watch.

The bigger picture question is what a cheaper iPad Mini means for Apple. While the need to compete with Google Inc (NASDAQ:GOOG) and Amazon should not be underestimated, even looking out to 2017, IDC has Apple only a few percentage points behind on a global basis. Given the profit advantage Apple commands, conceding the premium cache here seems less sensible than in smartphones. Additionally, the move begs the question as to whether Apple has shifted focus or is just looking to new product categories instead. Either way, the ramifications for Apple are important and should be closely monitored.

The article Apple’s Brilliant iPad Surrender originally appeared on Fool.com and is written by Doug Ehrman.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google.

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