When Apple's share price took a hit on the announcement of iPad Mini pricing, apparently it was because the analysts though the price was too high. Note - not because Apple's margins were going to be lower on the iPad Mini (which they are), but because they weren't cutting their margins by enough! Given the Apple will sell these things as fast as they can make them, Wall Street was effectively upset that Apple would be making too much money.
This from a company who's whole strategy is about being the upmarket, high margin option. They're so obviously leaving a price umbrella so that next year they can price-drop the current version when the next iPad Mini comes out and still make money hand over fist, while also leaving the opposition nowhere to go price wise.
They release a blockbuster refresh of their main products and gear up to make more money than ever before and their stock price dives 12%. Unbelievable.
No, the fear was that long term the sales of the mini would cannibalize sales of the higher-margin iPad and reduce net margins in a market that is approaching saturation and seeing increasing competition. Obviously that effect isn't going to be apparent in launch-day numbers like this (basically, you'd need to wait to see if the mini owners buy another iPad for that).
But you can believe that "Wall Street was effectively upset that Apple would be making too much money" if it makes you feel better. I'm sure those fund managers stay up late at night worrying about beating their targets...
I think it will cannibalise sales of the higher margin iPad, but that ceding the medium form factor market to 7" Android devices would be a bigger long term risk.
In this sense I agree with the analysis that Apple needed to introduce a lower cost medium form factor tablet for strategic reasons. I just expect them to do so in two phases, in exactly the same way that they have with previous devices. That is, introduce the new device at it's premium price point this year, and then move the year old device down to a lower introductory price point the year after.
In other words I agree with the argument that the introductory iPad Mini should be under $300. I just think that next year is when that should happen and jumping the gun would be a panicky amateur move that Apple would be idiots to make.
Long term iPad margins will be lower than they have been up to now, but that's inevitable one way or another and Apple are doing a great job managing the transition.
I should point out that I completely agree -- this is a market Apple needs to play in, the Android boxes are great too and providing huge price pressures, and Apple's margins absolutely will shrink in the future. And all of that is a good thing for all of us.
Nonetheless from the perspective of an Apple shareholder, it's a "bad" thing, and in the short term you'd expect their stock to reflect that.
Do you have a source for this? It seems to me that the whole tablet market is cannibalising conventional computer sales, in which case there's a hell of a lot of growth left.
There are clearly lots of people who are done with a working device the moment it gets slight cosmetic damage, or when the newer flavor of the device appears on the market.
It seems strange to me, but it looks like 'personal mobile computers' have a requirement for "device freshness" that is much closer to the shelf life of sliced bread than it is to that of a comparably-priced television.
If this is at all the case, Apple would seem to be headed for $4,000 per share.
> It seems strange to me, but it looks like 'personal mobile computers' have a requirement for "device freshness" that is much closer to the shelf life of sliced bread than it is to that of a comparably-priced television.
That's because the differences are still appreciable to the average consumers. Nobody cared about DVD-Audio, or SACDs, BluRay, 4k HD, 3DTV, etc... because they don't add an appreciable improvement to the experience.
People upgrade their phones or tablets frequently because the new one is almost always very noticeably faster and more responsive than the old one. Considering for many users this is the first time they've been able to outstrip their device in terms of speed (meaning they can navigate faster than the device can respond) I can easily see why upgrades are so desirable.
It's astounding how poorly the market understands Apple. They're completely oblivious to the real issues that are limiting Apple's growth (constrained supplies of key components), and pay far too much attention to market share.
For most devices in most quarters (aside from those in which a major upgrade to that device is introduced), Apple doesn't tend to have shortages, so it doesn't seem like their growth is being significantly constrained by component supply.
Maybe, but I think it can still be an issue, e.g. they release a new product now, and stock is constrained so they can't sell as much as they like. Now, this is the Christmas quarter, so many people will be buying something. If they can't buy an iPad mini now, and they buy a Nexus 7 instead, it doesn't matter that they could then buy it in January. That's still a lost sale to Apple.
Component shortages can manifest themselves in different ways too, e.g. why doesn't the iPad mini have a retina display? Is it because of display shortages, or processor shortages (non-retina means they don't need to put an A6/A6X in there)? It's arguably not because of profit margin: the Nexus 7 has an almost-retina display at a fraction of the retailing price.
This from a company who's whole strategy is about being the upmarket, high margin option. They're so obviously leaving a price umbrella so that next year they can price-drop the current version when the next iPad Mini comes out and still make money hand over fist, while also leaving the opposition nowhere to go price wise.
They release a blockbuster refresh of their main products and gear up to make more money than ever before and their stock price dives 12%. Unbelievable.