In our opinion, one of the most credible professional Apple analysts is Barclay's Ben Reitzes. This guy meets annually with CEO Tim Cook and CFO Peter Oppenheimer and emerges from these meetings with as close to inside information as you're ever going to get from Apple. On Tuesday, Reitzes released an under the radar report that potentially will evolve into a major stock moving variable over the next two weeks. His research report was shared via AppleInsider with the tagline "Apple's next big thing may be iDevice TV remote, not standalone HDTV". After discussing the prospects of an iPad mini for the last few months, we at Economic Timing also arrived at a similar conclusion that this product is ideally suited as a universal remote to control the living room. When first confronted with this idea, it sounds fairly insignificant to a company of Apple's size but upon further review, the analysis leads us to believe that Apple not only has another game changing device, but it might be the biggest one yet.
We first started floating the idea of iPad mini as an iRemote when we tried to come up with a mock agenda for the iPad mini event. If this product is worthy of its own event, there needs to be something to say. Summoning members of the media all the way to San Francisco to tell them that Apple has designed an iPad that is thinner with a smaller screen would take about five minutes. Not even Apple is that vain. So what is there to discuss about an iPad mini?
1- Introduction of the new name. iPad mini is a nickname used by analysts to refer to Apple's soon-to-be-released product. This precedent of applying a nickname to a future product also occurred with the iPad. Many were calling it the iTablet, iSlate or iBook before Steve Jobs revealed iPad. If the new name of this iPad mini is able to differentiate this product from the larger iPad, it could be an unexpected stock mover. Possible names include iPad Air, iPad TV, iRemote, or iPlay. Creating a perception of necessity is important for sales. The new name could do just that.
2- Credit given to Steve Jobs. It has been widely publicized that Steve Jobs argued against the initial idea of a 7-inch tablet, but Eddie Cue has recently remarked that Steve was changing his tune before he died. Why was he changing his tune? Perhaps it has something to do with the following quote he gave to Walter Isaacson on page 555 of his biography: "I'd like to create an integrated television set that is completely easy to use. It would be seamlessly synced with all of your devices and with iCloud." No longer would users have to fiddle with complex remotes for DVD players and cable channels. "It will have the simplest user interface you could imagine. I finally cracked it."
Because Steve used the phrase "television set" in this quote, many analysts have run with the idea that Apple is planning to enter the HDTV market. However, if you read the entirety of the quote, you see the important elements of the television model are the simple user interface and the iCloud sync. Both of these elements can be implemented through the $99 Apple TV box and a universal remote app built into the iPad mini. If the mini is able to excite consumers into adopting Apple products in the living room, it will create another round of demand euphoria.
3- Benefits of Apple TV. On September 24, Apple updated its Apple TV software to include shared photo streams with the ability to comment and receive notifications of new content. Shared photo stream is Apple's answer to the popular Facebook app called Instagram. If Apple can be the first to bring an Instagram experience to the big screen, it could mark Apple's first major social networking victory. In addition to shared photo stream, the Apple TV software was updated to include Airplay for wireless speakers and devices including the Mac, iPhone, and iPad. Airplay mirroring allows home movies, photos, websites, and apps to stream onto the big screen from your iPhone, iPad, or iPod Touch. Also included with Apple TV are services such as Netflix, Hulu Plus, sports leagues, iTunes television shows and movies, and 1080p HD. Apple does offer a remote app that allows you to control the Apple TV with any Apple mobile device, but control of third party devices such as Blu-ray/DVD players, cable boxes, etc. is still unsupported.
If you're looking for confirmation from CEO Tim Cook regarding the future of the current Apple TV box, it's easy to find. At the May 29 D10 conference, he mentioned that Apple TV is not a fifth leg of a stool, but is doubling in sales. In the first six months of fiscal 2012, it sold 2.7 million units. "It's a key part of the ecosystem. This is an area of intense interest for us. The customer satisfaction with that product is incredible. It's off the charts ...and so, we're going to keep pulling the string and see where it takes us."
Does Apple really want to compete with Sharp, Samsung, Sony, and Vizio in the $1,000+ price wars? Apple has become a company built on the business model of selling tens of millions of devices per quarter. That could happen with the iPad mini/Apple TV platform. It's unlikely to happen with a $1799 Apple HDTV. Expanding on the current model makes a lot of sense.
4- Benefits of iPad mini. Any idea how much a high quality universal remote costs? In our theater room, we have a Logitech touchscreen remote that retails for $279. The touchscreen suffers from delay issues that make it difficult to use when quickly changing channels or quickly browsing different inputs. The theory of a universal remote is sound. The software execution isn't quite ready for prime time.
However, the timing for such a product appears to be ready. In the last two years, we've seen that living room technology is coming with built-in wireless capabilities. Blu-ray/DVD players come with built-in wireless, gaming systems come with built-in wireless, TV's have wireless, home security systems have wireless ...it's a wireless world. If Apple can come up with a native app for the iPad mini that seamlessly controls these various devices and syncs them into the Apple ecosystem, it will be a game changing application. Households will purchase multiple iPad minis to be available in each room of the house. The profitability of the Apple TV box becomes irrelevant if Apple can bundle iPad minis alongside it.
Ben Reitzes certainly believes that TV remotes, not TVs themselves are Apple's "next big thing." He said, "We believe the 7" screen could be used for traditional content consumption such as reading books or watching movies, but Apple may have bigger plans for this device over time. With iCloud, we don't see any reason why Apple wouldn't eventually allow an iPad to be an interface for the TV -- to perform basic computing tasks with a virtual keyboard like checking emails and calendars, surfing websites, editing your photo stream and even chat with iMessage. The iPad could one day be used as a central command for the digital home ...controlling common household items like lights, HVAC units and TVs."
In our opinion, current expectations for the iPad mini are too low. Even if iPad mini has nothing to do with Apple TV or universal remotes, but is priced below $350, it will be the hit of the holiday shopping season. If iPad mini is linked to Apple TV and the rest of the living room through a universal remote app, households will purchase multiple iPad minis -- Apple won't be able to meet the demand for years to come. Last quarter, Apple sold 17 million iPads with an average selling price well above $500. What will happen if the iPad mini is a hit product priced at $299? Will Apple sell 30 million minis in a quarter? Will they sell 40 million? Could we see the day when the iPad mini sells more units per quarter than the iPhone? You better believe it. The way Apple presents this product to the public is very important. If it can create differentiation within its lineup of products by framing the iPad mini as a universal remote, Apple shares will surge on the unexpected news.
Disclosure: I am long AAPL.