Apple Has Started Making The iPad Mini -- Will It Clobber The Company's Profit Margin?

ipad mini


Apple has started mass-producing its smaller iPad, which is expected to be announced later this month, Lorraine Luk of the Wall Street Journal reports.The device will have a 7.85-inch screen with a lower resolution than the main iPad, her sources report.

Most people expect the new tablet to be called the “iPad Mini.” Apple is launching it to compete against a wave of smaller, lower-priced tablets from Amazon, Google, Samsung, and others, which have likely been eating into iPad sales.

The basic version of the new iPad is expected to be priced around $199-$299–up to $100 more than some of the competing tablets, but also $100 less than the the low-end full-blown iPad. This compares to prices ranging from $159 to $199 for similar-sized tablets from Apple and Google.

With the new iPad about to hit the market, the key questions are these:

1) Will Apple price the mini iPad aggressively enough to compete with Amazon’s Kindle HD and Google’s Nexus 7?  One of the big reasons for Apple’s spectacular rise in recent years is that it has been not only the quality leader in tablets and smartphones–it has also been the price leader. Both Google and Amazon, however, are willing to sacrifice profit margin on their tablets to sell more of them. Apple may not be. So many people expect Apple to aim for a modestly higher price point to protect its profit margin.

2) Will the device cannibalise sales of the larger iPad?  Apple’s iPad has dominated the tablet market for the last couple of years, but the company has recently lost overall share due to the launch of smaller tablets. Assuming there is strong demand for smaller, cheaper tablets, will the iPad Mini cannibalise sales of the bigger and presumably more profitable iPad? Seems possible.

3) Will growing sales of iPads (of all sizes) hurt Apple’s profit margin?  One of the reasons Apple has become so mind-bogglingly profitable is because of the extraordinary profit-per-unit it makes on sales of the iPhone. The iPad does not appear to be anywhere near as profitable, and mini-iPads will probably be even less profitable. As these devices become a larger percentage of Apple’s overall revenue, therefore, they may cause Apple’s overall profit margin to decline. This would not necessary be a negative–as long as Apple’s profits continue to grow, the margin should be irrelevant–but the stock market does not like declining profit margins.

Apple’s extraordinary profit margin is, ironically, likely the biggest risk to the company’s stock price. And for this and other reasons, the margin may soon begin to decline. (See: “Apple’s Biggest Risk May Be Starting To Hit Home.”)

SEE ALSO: Here’s What The iPad Mini Is Expected To Look Like

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