As you may know, an Apple iPad mini is now just about certain and the iPad mini details are still bubbling up well ahead of the launch (reuters has confirmed the rumored Oct 23 launch). As they continue to come out, analysts are scrambling to estimate what impact the imminent arrival of a tablet fighting in a “low-margin” segment would do to Apple as a stock and as a company. By “low-margins”, you should really understand “no margins” because Amazon and Google have basically removed any profits from the 7″ segment by selling “at cost”, as recently confirmed by Amazon, talking about its new Kindle HD.
The current iPad has much lower margins than the iPhone, which still represents about half of Apple’s business and more than half its profits. The iPhone is thought to have a profit margin of about 50%-60%. The current iPad’s margin is believed to be 25%-30%. Because cheaper products tend to sell in higher volume, there’s a worry that this may affect Apple’s stock performance in the near future. At the moment, Apple is rumored to have ordered 10M iPad mini for the last quarter.
The consensus is that if Apple sells the iPad at $299+, then its overall profitability could be left intact. Still, that’s a 50% premium over competitors, but it’s not impossible that Apple manages to do it, because that’s a substantial $200 below a 9.6″ iPad for the same type of functionality. Also, a 7.86″ iPad mini would cost a bit less to produce.
In the end, the users will define if they are willing to pay a 50% premium over competing 7″ tablets like the Nexus 7 to get inside Apple’s walled garden. What’s your take: why would you buy a 7″ tablet and do you think that Apple’s design and eco-system are worth a 50% premium? Leave a comment below.
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