Apple iPad Mini – A Strategic Move
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There have been continuous rumors of Apple (NASDAQ: AAPL) releasing its new iPad mini to compete in the 7” tablet market. Recently a blog site iMore indicated that Apple will announce the iPad mini on September 12 following the information coming from sources that have “proven to be accurate in the past.” We believe that the launch (if happens!) will add to the future prospects of Apple and remain positive on the strategic implications going forward.
What:
The 7" tablet market is currently dominated by Amazon’s (NASDAQ: AMZN) Kindle Fire and Google’s (NASDAQ: GOOG) Nexus 7. We believe that Apple with its own offering of iPad mini might try to fill the product gap in this low pricing segment. There are speculations and rumors surrounding the market which suggest that Apple might be launching iPad mini with an A5 processor (same as that of iPad2) and 3G/4G connectivity option. We believe that the Apple iPad mini might come in 2 SKUs of lower capacities to help provide cannibalization of iPad which currently comes with capacity options of 16, 32 and 64 GB.
Why:
We believe that the launch of an iPad mini is more of a strategic move rather than a financial one by apple in wake of its recent conflicts with Google. While Apple iPad holds a dominant market share in the full size tablet segment due to its first mover advantage and powerful ecosystem, Apple is unable to tap the potential from the consumer demand in the smaller and less expensive tablet market. While the iPad is too expensive, iPod Touch lags functionality-wise and is too small to address reading needs. Apple with its entry into the lower price segment is trying to maintain its leadership position in the tablet market and prevent competitors from increasing their market share.
Strategic Implications:
1) This move could help Apple to expand its addressable market into the price sensitive segment with its more affordable pricing. We believe that in the long term this move can help Apple to expand into emerging markets like China and India, who might prefer Apple products with lower price points over Google and Amazon.
2) As Apple products have shown a higher level of stickiness with intent to repurchase, we believe that this move might increase up-sell opportunities for Apple.
3) Apple might generate higher revenues from the iTunes and App store with an increased user base.
4) An iPad mini launch might potentially help Apple, if Apple tries to enter into the payment business (As Google has tried with Google Wallet) as Apple gathers payment account info through iTunes and App Store.
5) Apple has been trying to gain traction in the education vertical with its low priced iPad2. We believe that iPad mini with its affordable costs might further help Apple expanding its footprints in the education vertical.
Financial Implications:
As far as the financial implications go we believe that iPad mini might not be such a revenue needle mover for Apple. If we assume that Apple iPad mini would sell 20 million units (considering that Apple iPad sold 20 million units in the first year) in year one at a price point of around $200, the revenues would come at around $4 billion or ~3% of total revenues excluding the cannibalization effects it would have on iPad sales.
The Bottom Line:
Apple, following its rivalry with Google, is trying to deny any standing to Google into its stronghold market. While the financial implications of the mini might be negligible for Apple, the release would open the way for several strategic growth alternatives for Apple in the long term. We believe that a launch of Apple mini might give investors another reason to buy Apple with the new Apple iPhone 5 release already acting as a potential catalyst for the stock in the near term.
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