Apple Inc. (AAPL): Rumor Has It

Apple Inc. (NASDAQ:AAPL)‘s World Wide Developers Conference is just a month away, and the company has often used that event to launch new products. Accordingly, the Apple rumor mill is beginning to heat up. While Apple Inc. (NASDAQ:AAPL) CEO Tim Cook recently dropped hints about new products coming in the fall, Apple followers are still trying to guess what the company has up its sleeve.

One of the biggest topics of interest is the future of the iPad Mini. The iPad Mini features less impressive technical specs than its larger cousin, but it still accounted for 55%-60% of total iPad sales last quarter, because of its lower starting price. A variety of analysts have opined that the next-generation iPad Mini will receive a “Retina” display, similar to the one used in the full-sized iPad. Is this a realistic expectation?

Rumor has it
An analyst at NPD DisplaySearch recently predicted that Apple Inc. (NASDAQ:AAPL) will launch a new iPad Mini with a Retina display in September or October. Ming-Chi Kuo, an analyst at KGI Securities, agrees with that assessment but also expects a cheaper version of the iPad Mini to come out at around the same time, priced between $199 and $249.

The iPad Mini. Source: Apple.

Gross margin (the wholesale price minus the cost of materials, manufacturing, and shipping) is a critical factor to consider when assessing Apple Inc. (NASDAQ:AAPL)’s potential plans. Apple’s management has frequently stated that the iPad Mini’s gross margin is significantly below the corporate average. This means it’s less profitable than other Apple products. The company is therefore unlikely to add features that raise the production cost, unless it also raises the price.

On the other hand, Apple Inc. (NASDAQ:AAPL) could bolster its tablet market share by offering a cheaper iPad Mini, a more powerful iPad Mini, or both. Amazon.com, Inc. (NASDAQ:AMZN) has heavily promoted the fact that its Kindle Fire HD models are cheaper than the iPad Mini while offering higher resolution “HD” displays. Many consumers are willing to pay a premium for an iPad because of its premium design and app ecosystem; but Amazon.com, Inc. (NASDAQ:AMZN), Samsung, and Google Inc (NASDAQ:GOOG) are nevertheless chipping away with improving iPad alternatives.

Cost considerations
IHS iSuppli estimated the combined display/touchscreen cost for the iPad Mini at $80 as of last November. However, the iPad Mini has a resolution of 1024 x 768, whereas the third- and-fourth generation iPads — which have Retina displays — offer 2048 x 1536 resolution.

For the iPad Mini to achieve that resolution, Apple Inc. (NASDAQ:AAPL) would have to double the pixel density and quadruple the total number of pixels.