Sat, 07 Jul 2012 iPad Mini Would Cannibalize Apple's Tablet Sales

If Apple launches a pint-sized version of its best selling iPad tablet, it could grab sales not only from competitors but from Apple itself.

Such sales cannibalization of existing iPad models would be minor and would be more than offset by the rewards to Apple for expanding its line, according to Brian White, an analyst with Topeka Capital Markets, who has been beating the drum about a smaller iPad since last fall when he coined the term iPad Mini for the gadget.

"We would expect the cannibalization of the current iPad by the 'iPad Mini' to be relatively minor and potentially in a range of just 10-20 percent, while the market opportunity could eventually be larger for the 'iPad Mini' given the growth trends in developing countries," White writes in a research note released Thursday.

White maintains that the Mini would be a hit in developing countries, like China. In the developed world it would also be popular with price-sensitive consumers, those who find  the smaller form more convenient, educators who will like the price -- expected around $250 -- and younger children who will find a smaller device easier to handle than a 10-inch tablet.

White also believes a market segment will develop for "two-iPad families." "[W]e would not be surprised if certain consumers end up owning both a regular-sized iPad and an 'iPad Mini,' swapping between the two devices for different occasions," he writes. White notes that iCloud further enables content on the two iPads to be automatically duplicated and easier to share among Apple devices.

Admittedly, the profit margins on a smaller iPad will likely be smaller than those of its Big Brother, but White contends that gap can be managed by omitting features from the Mini found in the larger iPad.

At $250, the Mini would still be more expensive than its $199 competitors, Google's Nexus 7 and Amazon's Kindle Fire, but White argues that the Mini would be a "higher quality" product that offers consumers an overall better experience than its competitors, as well as a robust ecosystem.

"Ultimately, we view the potential addition of the“iPad Mini” as a long-term positive for Apple’s iPad franchise and necessary to keep competitors from trying to control the lower price point segment of the market," he concludes.

Apple vs. Apple

While no company is enamored with undercutting the sales of existing products with new products, Apple has shown in the past that it will tolerate cannibalization if the Big Picture demands it. That was the case when it introduced the iPhone, which it knew would eat into iPod sales.

"It's better that Apple cannibalizes itself than anyone else cannibalizes Apple," observes Bob O'Donnell, IDC's research vice president for clients and displays. "You want your customers to use your stuff."

If cannibalization gives Apple domination of the total tablet market, then cannibalization is acceptable to the company. "I think Apple likes owning a market," O'Donnell adds.

"It's in strong control of the tablet market and if they do this, it will put incredible competitive pressure on everybody else," he says. O'Donnell says a $249 iPad Mini presents a strong challenge to $199 tablets are "because people would rather pay a few bucks more and get an iPad than to get something else."

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