First Indications On Apple's iPad Mini

| About: Apple Inc. (AAPL)

At this point, it's almost a given that Apple (NASDAQ:AAPL) will present its new iPad mini on October 23. The rumors bearing the most credibility tout this product as being a 7.85" tablet running iOS 6, with storage capacities of 8Gb, 16Gb, 32Gb and 64Gb. The iPad mini will be available in wifi versions, as well as cellular.

The main novelty with the iPad mini, beyond its size, is that this time, Apple seems to have an "attack version" of the device. In other words, its main objective will be to go head-to-head against's (NASDAQ:AMZN) Kindle Fire HD and Google's (NASDAQ:GOOG) Nexus 7 tablet. By this, I mean for the first time, Apple will seemingly compete on price with its lowest spec'd version.

The objective of this new product from Apple seems clear: Not to let the 7" segment of the tablet market be the beachhead its competitors will use to establish market dominance.


The reason I say Apple will compete on price for the first time is because the first rumors indicate the likelihood that the lowest spec'd iPad mini will price at $249. This will be a 8Gb, wifi-only model. The rumor that supports it is the leaked pricing for the iPad mini in an European retail chain (Media Markt). Here, the iPad mini will start at 250 euros, which given the Value Added Tax (VAT) and the EUR/USD exchange rate, translates close to about $250. Overwhelmingly, that points to a $249 price point.

This price has several implications:

  • It's competitively priced vis a vis the $199 and Google charge for the Kindle Fire 7" HD and Nexus 7, respectively. Sure, it's $50 higher, but Apple's image and App ecosystem seem enough to warrant the slight premium.
  • It will be a price at which Apple can't have a giant margin. It's not breakeven for sure, but it's also far from the margins Apple is used to. We'll only know for sure once the iPad mini surfaces and is subjected to a teardown, but with the iPad 3 at $316 in BOM cost for the basic model, one would expect a cost not much below $200 for the iPad mini.
  • Again, Apple's strategy to increase margins on the product relies on the customers choosing a model above the basic model. Both storage and the availability of cellular connection imply large increases in the pricing -- much like it does with the iPhone and iPad -- meaning much better margins for the better spec'd models. Pricing on the iPad mini is rumored to go all the way up to $650, more than two times the cost of the base model.

In short, if the rumors regarding the price are confirmed in a few days' time, we have seen the first time Apple has decided to fight on price just to reclaim a market segment. It's also curious that if these rumors turn out to be true, Apple will be pricing the cheapest iPad mini below the new iPod ($299).


The first indications point towards Apple having ordered 10 million of the devices for sale in Q4. If this pans out, it would mean Apple expects to outsell both the Kindle Fire 7" HD and the Google Nexus 7 in Q4 -- perhaps by as much as 100% more.

If Apple were to reach this number, it would probably mean that its strategy to reclaim the 7" segment of the tablet market would be attained.

Revenue Impact

Ten million units at a composite price of $300 -- which is rather optimistic -- would mean $3 billion in revenues for Apple from this product alone. Given Apple's Q4 revenue estimate of $54.7 billion, this would mean the iPad mini could make up 5.5% of those revenues. Not world-changing, but still a fairly large share for a completely new product.

Although it's too early to know its cost, the device would probably have a significantly lower impact on Apple's earnings, since it's to be expected that it will be the lowest margin of Apple's mobile devices by a fairly large difference.

At this point, Apple's move to bring the iPad mini to market is more of a strategic move not to let any relevant market segment go unserved.


The iPad mini, which is rumored to be slated for an October 23 launch, seems more like a defensive move by Apple to take back the 7" market from the likes of Google and Amazon. It won't have a large positive impact on Apple's earnings and revenues, but it can work to extend Apple's iOS dominance into the 7" market where it does not have a presence at this time, thus impeding its competitors from gaining too much of a toehold in the tablet market.

Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.