Even at $329 the iPad Mini price might be too low to protect Apple’s profits.
Apple has finally announced the iPad Mini. A few weeks ago I wrote about how the iPad Mini was a necessity for Apple to avoid being undercut on price by the competition.
This was made even more clearer with the aid of a price chart put together by Ryan Jones. But, now the product is real and we have official pricing, how does it compare to the expectation?
Firstly, Apple has added six newly priced models – three different storage combinations with two wireless options.
Perhaps most interesting is that Apple hasn’t simply just added cheaper priced models with the iPad Mini. Instead, it’s also used the device to place more price points thought out its existing product mix. Notably there are two new price points between $400 – $500. And of course there has been much debate about the entry-level iPad Mini price of $329. Also, Apple didn’t discontinue the iPad 2.
There is still the issue of the Amazon Kindle Fire and the Nexus 7. Both start at $199. Apple has reduced the price gap from $200 to $130. But, the iPad Mini is still 65% more expensive.
But, even the price of $329 is a big risk for Apple. The company has admitted that the iPad Mini has a significantly reduced gross margin compared to the company average. The risk is that those who would have bought the larger iPad will instead buy the iPad Mini, cutting into Apple’s profits. Even when considering the practice of product sabotage (which I wrote about here) the $170 difference between the two is large.
It’s therefore possible that Apple’s profits will take a hit if the cannibalisation isn’t offset by large volume sales of the iPad Mini. But, if the company can sell enough, even with a lower GM level, a higher cash margin should keep investors happy.