Apple sold 14 percent fewer iPads in the quarter that ended on 30 June than during the same stretch in 2012, while the revenue it earned from those sales plummeted by 27 percen">

Forget the high margins, Apple – cut iPad mini prices

Gregg Keizer
25 July, 2013
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Apple sold 14 percent fewer iPads in the quarter that ended on 30 June than during the same stretch in 2012, while the revenue it earned from those sales plummeted by 27 percent.

Analysts tied the decline in revenue to the iPad mini, Apple’s smaller, lower-priced tablet that has significantly cannibalised sales of the pricier, 9.7in original. But, ironically, they urged Apple to reduce prices of the mini even more.

“Tablets may not have fully saturated the market, but it’s getting pretty cramped,” Ezra Gottheil, an analyst with Technology Business Research, said in a Tuesday interview. “There’s real competition for the iPad, real alternatives, and Apple has to deal with that.”

To keep selling large numbers of iPads, keep the competition at bay and protect its ecosystem, Apple has to recognise that the gravy train days of outrageous margins are over, Gottheil added. Once it figures that out – that there is a ‘new normal’ – it has to compete, if not head-to-head on price, at least in the same neighbourhood.

“This is real life. You have to work for your sales, margins are tighter and there’s lots of competition,” said Gottheil. “If they would bring down the mini to US$249, they could do some really big numbers. That would be a really sweet tablet.”

The iPad mini now starts at US$329 (A$369) for a 16GB model, with prices climbing in US$100 increments as the storage space doubles to 32GB, then again to 64GB.

Van Baker of Gartner seconded Gottheil on the price problem, but also noted that the surprisingly sluggish sales were largely due to the lack of new products in Apple’s line-up. Apple last updated the iPad in early November 2012, when it also began selling the iPad Mini.

“Their numbers [for the second quarter] show that Apple’s model is driven by new stuff,” said Baker. “There’s always this thirst for something new.”

Without that ‘new’, Apple’s sales inevitably stall, a trend seen not only in the iPad, but also in the iPhone – where historically sales slip as the annual refresh approaches – and on the Mac. Even Apple CEO Tim Cook acknowledged as much in Tuesday’s call with Wall Street analysts.

But Apple has provided no hint, as is its practice, about when it will refresh the iPad family. The most recent rumours have pegged a new iPad for this spring, and a new Mini, perhaps one with a Retina-quality display, in early 2014.

Because Apple would probably retain the original iPad mini, but drop its price, a tactic it already uses with the full-sized iPad as well as the iPhone, the natural moment for a price cut would be at the launch of a new model. Gottheil and Baker thought that would be too late.

“I don’t think they can afford to not [cut prices],” Baker said.

iPad ASPs chart

The iPad's average selling price, or ASP, has been declining for two years as customers opt for less expensive 9.7in models or, increasingly, the US$329 iPad Mini. (Data: Apple.)

There’s no question that dropping the mini’s price would reduce per-tablet revenue, accelerating the current decline.

Over the last 12 months, the iPad ASP, or ‘average selling price’, has dropped 19 percent, from US$538 a year ago to US$436 in the most recent quarter. The largest quarter-over-quarter ASP slide since the iPad’s 2010 introduction was an 8.1 percent plunge in the first quarter of this year, less than two months after the Mini reached retail.

That wasn’t a coincidence.

“The consistent drop in ASP since the iPad mini launch suggests that the sales mix has been shifting towards the iPad mini, in other words that the sales of the full-size iPad have seen consistent sequential declines thanks to cannibalisation,” said Sameer Singh, an analyst who covers smartphones and tablets on his Tech-Thoughts blog.

That mix was recently analysed by Consumer Intelligence Research Partners (CIRP), a Chicago-based firm that conducted a survey with Apple customers in the US earlier this month. According to CIRP, the iPad mini accounted for 33 percent of all iPads purchased between April and June. The rest were evenly split between the aged iPad 2, which Apple sells for US$399, and the current-generation Retina-equipped 9.7in tablet that starts at US$499.

With the exception of the iPad 2, the most popular models were the least expensive, said CIRP, implying that Apple customers are no different than any other tablet maker’s: they’re sensitive to price.

Cutting the price may be a risk – it would further depress ASPs and result in lower margins for Apple – but the analysts agreed that it’s a move the Cupertino, California company should make if it wants to stay in the game as it faces ever-fiercer competition.

“They need to take big steps to show there’s a difference between an iPad mini and a Nexus 7,” said Gottheil, referring to Google’s flagship 7in tablet. Google has just unveiled the newest Nexus 7, and said the high-resolution tablet – it uses a 1920 x 1200-pixel display, almost triple the pixel count of the mini’s 1024 X 768 screen – would sell for US$229 (16GB) and US$269 (32GB).

“If Apple can come up with a Retina iPad mini at US$329, and can lower the price of the existing mini to US$249, and do that profitably, that’s a killer,” said Gottheil.

“Apple’s margin declines are permanent,” said Baker, echoing Gottheil in arguing that Apple must first acknowledge as much, then realise that cutting prices won’t be its doom. “After all, they’re so much better than anyone else in hardware, even now.”

by Gregg Keizer, Computerworld

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