The Coming Demise of the iPod Touch

By Chad Henage - July 12, 2012 | Tickers: AMZN, AAPL, GOOG | 0 Comments

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In a recent article by Evan Niu of The Motley Fool, he suggested that the iPad Mini rumors might finally be real. He cited at least three different sources, that indicated that a 7 to 8 inch iPad could be introduced as early as September or October of this year. The challenge for Apple (NASDAQ: AAPL) is, what to do with the iPod touch if an iPad Mini is going to come to light. 

First, let's cover the speculation coming out in the news media. NPD DisplaySearch analyst Richard Shim told CNET, that 8 inch panels are being sent to Apple already. Bloomberg also is reporting a 7 to 8 inch non-Retina display. Staying away from the Retina display would allow Apple to keep costs down, in theory allowing a lower price point. Last but not least, the Wall Street Journal is also saying a tablet of less than 8 inches could begin mass production as soon as September. Some estimates say Apple could sell as many as 35 million of these new tablets at $299 in 2013, though some cannibalization of the 10 inch iPads would definitely occur. There's one big problem with Apple producing a 7 to 8 inch tablet, and that is the price point that the company already sells the iPod touch at.

When you consider the two primary competitors in the 7 to 8 inch tablet space are Amazon.com (NASDAQ: AMZN) and Google (NASDAQ: GOOG), the pricing of the tablet has to match or be close to these two competitors. Specifically the Kindle fire with 8 GB of memory at $199, and the Nexus 7 with 8 GB of memory at $199, are the key tablets that this new iPad Mini would be facing. With the existing iPod touch models beginning at $199 it seems as though the iPod touch has to disappear. The difference between an iPod touch and the size of these competing tablets is significant. To make this work, Apple will need to convince iPod Touch prospective buyers that they are getting a better value. Take a look at the comparison:

You can see from the chart, that for Apple to produce an iPad Mini, the company would have to come up with a device that fits right in between the iPod touch and the iPad's current dimensions. The real challenge is less with the dimensions and more with the pricing. When you consider that an 8 GB iPod touch can be had for $199 and iPad 2 can be had for $399 there's only a $200 space between these two items, in order to place an iPad Mini. If the iPad Mini is produced, you would expect the base model to carry at least 16 GB worth of memory (the standard for iPads), and pricing should be at least $249, which would match the Nexus 7 16 GB model. Given the fact that the iPod touch is essentially an iPhone without the telephone capabilities, it seems an iPad Mini would represent a better value for iPod touch buyers. In the same way that the iPod Touch has destroyed the market share of click-wheel iPods; it seems the iPad Mini, if it comes to light, is destined to kill off the iPod touch.

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