Tuesday, October 16, 2012

How Apple Can Price the Low-End iPad Mini At $200

I like to see Apple price the iPad mini at $200.  Of course, it doesn’t mean that Apple will do it.  If it has cause and it can do so without sacrificing the margin (which seems rather unlikely), then I am sure Tim Cook will do it.  But that’s not why I’m writing this post.

I want to get into see how Apple “can” find a way to price the iPad mini with 8 GB storage at $200 and really make Christmas for Amazon, Google, or anyone else in the tablet realm a really, really bad one to remember.

First, there is the massive supply chain that Apple has built up over the years.  And it’s not just parts that Apple has sourced and hogged so that others have to wait until it has had its fill before they get their own turn.  It’s also about how Apple has depressed the cost of components that allow it to price the iPad at $500 when it was introduced in 2010 and not at $1,000.  And it’s been a couple years since the original iPad debut.  So costs has come down quite a bit.

On top of that, Apple has generously financed some manufacturing equipments and factories for partners that would enable it to get what it needs and at much better prices than its competitors.  Do you see or hear this happen for Microsoft, Google, or HTC?  Maybe only Samsung can match Apple to some extent.

Now, let’s move onto the media revenue that Apple is likely to generate from this.  Last year, when Apple put on the iBooks event with textbooks as an emphasis, the main issue was which would come first – digital textbooks sales or iPads.  You know, the chicken or the eggs?  You can’t have digital textbook sales if there are not enough iPads in the hands of students.  And you cannot have enough iPads if each costs $500 at the time.  You can get an iPad 2 at $400 now but there’s nothing like trying to get them in the hands of students at $200.

And if the low-end iPad mini does sell for $200, look for an explosion in iTunes media sales where Apple has an ecosystem that is unmatched.  eBooks, music, video, and apps will give Apple an even bigger stream of revenue than ever before.  Of course, this is all before Apple’s own television plan comes to fruition.  There could be another stream of revenue that could allow Apple to make up for selling the iPad mini at a lower price.

Are we done?  Absolutely not.  Other iOS hardware sales continue to break records.  iPhone 5 demand is supposedly double that of the iPhone 4S but don’t think the iPhone 4 and the 4S aren’t going to pad some of Apple’s margins.

The updated iPod touch and iPod lines should continue to bring in a few billion dollars in cash from both hardware and media sales.

Then there’s the iPad.  I’m sure by now, Apple has managed to lower the per cost of each iPad built and may also reflect that at the iPad mini event with some redesigns.  It’s likely Apple has managed to bring down the costs of the Retina Display.  Obviously, that means better margins on the new iPads as well.

But I’m not done.  Mac sales are continue forward with Asia, particularly the Greater China zone (China, Hong Kong, Taiwan), showing no slowdown in their appetites for Apple’s computers.  And the premium that the high-end Macbook Pro with Retina Displays are bring in, it just pads everything for Apple.

Then there’s the new cables and adapters that Apple is making everyone buy when they switched over from the 30-pin adapters to the newer Lightning adapters.  Don’t think that Apple is making and selling them at reasonable price. No way.

So, when you add all that together, we can see just Apple can price the low-end iPad mini at $200.  There isn’t much history with Tim Cook as Apple’s CEO with respect to pricing so we don’t know if he’ll go for the kill or show off some of that Apple swagger and price the mini at $250.  After all, this is an Apple product and it demands some sort of a premium over competing devices on the market.

I’m thinking it’ll be the latter.  Perhaps, Apple might go with $220 just to make a statement to the market.

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