Honey, Apple Shrank the iPad!

Where's Rick Moranis when you need him?

As expected, Apple (Nasdaq: AAPL  ) has indeed shrunk the iPad, officially unveiling the iPad mini today. This comes after months of speculation that Apple would enter the small-tablet market, after rivals like Amazon.com (Nasdaq: AMZN  ) and Google (Nasdaq: GOOG  ) were enjoying early success with their respective Kindle Fire and Nexus 7 devices.

Look out below!
The iPad mini is slightly larger than its rivals, featuring a 7.9-inch display. That was mostly in-line with expectations. The new device carries a dual-core A5 processor, likely the exact same one powering the older iPad 2. It also takes design cues from the newly released iPod touch.

Source: Apple.

In order to preserve app compatibility and alleviate fears of fragmentation, the iPad mini carries the same resolution as the iPad 2 of 1,024 x 768, meaning all existing apps will work immediately with no developer effort required to reoptimize their apps.

The biggest unknown up until now has been where Apple would price the device. It will start at $329 for a 16 GB model, and in characteristic Apple pricing fashion, adding $100 increments doubles storage up to a maximum of 64 GB. Consumers looking for 4G LTE connectivity will have to fork over another $130 premium. That means a fully loaded iPad mini will set buyers back by $659, which is almost exactly at the middle of the full-size model's pricing spectrum ($664).

Investors are clearly disappointed with the competitiveness of this pricing strategy, as shares promptly dipped upon this news. For comparison, a 16 GB Kindle Fire HD costs $199 and a 16 GB Nexus 7 costs $249, so Apple's premium over comparable tablets ranges from $80 to $130.

The "new iPad" ain't so new anymore
Apple also departed from its annual product cycle and even updated the 9.7-inch iPad to a fourth-generation model. At the same time, the company has now rebranded the device, which is no longer called the "new iPad" and simply the "iPad with Retina display." The updated model carries a faster A6X chip that boasts double the performance in both the CPU and GPU.

Considering the custom-built A6 found in the iPhone 5, it's highly likely that this A6X chip has increased in sophistication and the "X" refers to additional GPU cores to power the Retina display. It also now sports the new Lightning connector, and expanded support for international 4G LTE frequency bands. The fourth-generation iPad is also getting more LTE support stateside, as Sprint Nextel (NYSE: S  ) is now a carrier partner for both the fourth-generation iPad and the iPad mini, joining its larger rivals AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) .

This may be particularly frustrating for early adopters of the third-generation model, who probably expected an update wouldn't occur until next spring, even though the upgrades were relatively incremental.

Raining on Mr. Softy
Pre-orders for the device begin on Oct. 26, which happens to be the same day that Microsoft (Nasdaq: MSFT  ) officially launches Windows 8 and its own Surface RT tablet to the masses. That could put potentially dampen Mr. Softy's party, which is its biggest product launch in years.

The fourth-generation iPad will also put more pressure on Surface RT in the full-size tablet market. The iPad mini officially launches on Nov. 2.

It's alive!
Contrary to popular belief, Apple chose not to kill off the iPad 2, keeping it on tap at the $399 price point. By pricing at $329, the iPad mini sits between the smaller iPod touch and the larger iPads. That leaves a slew of configurations that consumers will have to wade through, potentially a daunting task. This is now Apple's iOS lineup in the $300 to $500 range.

Product

Display Size

Storage

Price

iPod touch

4-inch

32 GB

$299

iPad mini

7.9-inch

16 GB

$329

iPod touch

4-inch

64 GB

$399

iPad 2

9.7-inch

16 GB

$399

iPad mini

7.9-inch

32 GB

$429

iPad with Retina display

9.7-inch

16 GB

$499

iPad mini

7.9-inch

64 GB

$529

Source: Apple.

That's a strong lineup heading into the holiday shopping season, even if it's a little intimidating to sift through.

Back to the Mac
Apple also unveiled new Macs, bringing the latest Intel (Nasdaq: INTC  ) Ivy Bridge and NVIDIA (Nasdaq: NVDA  ) Kepler chips to the rest of its lineup. The Mac mini saw incremental internal improvements, while the iMac saw a dramatic redesign that slims down Apple's popular all-in-one.

The Mac maker also unveiled a new 13-inch MacBook Pro with Retina display. Ivy Bridge chips are now present throughout all Macs except the neglected Mac Pro, and any models that utilize discrete GPUs use Kepler GPUs.

Dilemma solved
Preliminary estimates put the entry-level iPad mini's bill of materials, or BOM, at around $195, representing a solid gross margin of 41% at its $329 retail price. Unlike its e-tail and search giant rivals, we knew Apple would seek a healthy margin on the hardware. That's an even higher gross margin than Apple earns on the third-generation model, which carries an entry-level BOM of $316 for a 37% gross margin.

While the iPad mini tells us a lot about how Apple approaches the Innovator's Dilemma with its propensity for self-disruption, it sure helps when you're moving down-market to a product with higher gross margins.

If Apple was scared of Amazon's aggressive lineup before, then the tables should now be turned and the e-tail giant should be downright terrified.

Looking for more iPad mini guidance? We've just released an exclusive update that looks at just how important the iPad is to Apple, and how the iPad mini fits into the company's long-term goals of tablet domination. By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about the launch and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.

Evan Niu, CFA, owns shares of Apple, AT&T, and Verizon Communications. The Motley Fool owns shares of Apple, Amazon.com, Google, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, Intel, Microsoft, NVIDIA, and AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (20) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 23, 2012, at 4:52 PM, Borbality wrote:

    seems like AAPL could totally eliminate the competition by releasing one at a loss, maybe at anything below $200. I mean sure, they like having the big margins, but even as someone who hasn't used anything Apple since the iPod in 2005, I'd totally be interested in a real-deal iPad for less than $200.

  • Report this Comment On October 23, 2012, at 4:55 PM, dlchase24 wrote:

    I was wondering how long it would take someone to use that headline...

  • Report this Comment On October 23, 2012, at 5:03 PM, deasystems wrote:

    The author wrote, "The iPad mini is slightly larger than its rivals, featuring a 7.9-inch display."

    Actually, the iPad mini is thinner and lighter than its would-be rivals while providing display 35% larger. Quite a trick, isn't it?

    The author then stated that the "16 GB Kindle Fire HD costs $199 and a 16 GB Nexus 7 costs $249, so Apple's premium over comparable tablets ranges from $80 to $130."

    Not quite: The ad-free Kindle is $215 so the premium range is actually $80 - 115. Not much of a premium for Apple's super-premium device (and accompanying ecosystem).

    Thanks for the article, Evan.

  • Report this Comment On October 23, 2012, at 5:44 PM, jm7700229 wrote:

    It seems a shame that there is no stock around other than AAPL, or at least none that captures MF's attention. Please follow some stocks that make things in the US and pay taxes here. There are more than you seem to know.

  • Report this Comment On October 23, 2012, at 6:19 PM, bretco wrote:

    Hooray for im7700229's sentiments if not for his/her investment wisdom.

  • Report this Comment On October 23, 2012, at 6:31 PM, eldetorre wrote:

    "yet another revolutionary device.."

    Huh? where?

  • Report this Comment On October 23, 2012, at 7:06 PM, joshisam wrote:

    OK, here you (MF) go again.

    1. Like one of the comments indicated, why leave out the 35% more screen space on the iPad Mini?

    2. Comparing a Kindle or a Nexus with an iPad is like comparing a non-luxury car with a luxury car. Does that even make sense?

    3. You indicate that AAPL stock fell because "investors" did not think that the price was competitive. You would have cribbed if the price was say $250 saying AAPL profit margin is gone. With you guys AAPL is in a no win situation.

    4. I would love to see you tell the truth about AMZN which sells products at cost or loss, and is barely (I mean barely if at all) making a profit.

    5. Can you all just leave AAPL alone?

  • Report this Comment On October 23, 2012, at 7:15 PM, ryanalexanderson wrote:

    Do I use this device at home? If so, why not use an iPad instead?

    Do I carry this device around? I'm a dude. And I don't have a man-purse. Will this thing fit in my pocket like an iPhone?

    Please someone describe the scenario where I would want this. I am the proud owner of an iPhone, iPad, and iMac - and an old iPod Nano. I can make a case for any of these. But not this thing.

  • Report this Comment On October 23, 2012, at 8:07 PM, ScPhD wrote:

    All the boo=haha about MF and Apple....lets not forget Apple has re-established true roduct branding as never seen since the 50's and 60's with G.M. and the Marlboro man. MF knows how to rollout winners. Yes with that said, Apple has too much Asian exposure and will suffer for it, chip makers are going to look to leverage themselves against Apple. Bandwidth providers is where the true growth will be. Agreed???

  • Report this Comment On October 23, 2012, at 8:51 PM, TMFMarlowe wrote:

    @jm7700229, plenty of TMF writers write about companies other than Apple. I spend my days writing mostly about a couple of rather large and prominent U.S. companies that make things in the U.S. and pay taxes here. Poke around.

    On topic: Evan, do you think the iPad mini will sell well at this price point, despite non-Retina screen etc.? My first-adopter geek friends -- my test audience for this kind of thing -- seem unexcited. What's your take?

    John Rosevear (AAPL shareholder since 1981)

  • Report this Comment On October 23, 2012, at 10:06 PM, Birdtrax wrote:

    Apple is all hype, their products lack common sense functions. Every 9 months they release an upgrade and Apple idiots buy them. Woohoo we added a hdmi port, hey we added a power button, look we have a camera now...geez pathetic. I would take a Kindle or nook or any other tablet with all the bells and whistles for 1/2 the price. Your getting ripped off fashion tech snobs, wake up.

  • Report this Comment On October 23, 2012, at 11:25 PM, irvingfisher wrote:

    Wow ! A slightly smaller iPad that's slightly bigger than an iPod touch. Revolutionary! I absolutely must have one NOW!

  • Report this Comment On October 24, 2012, at 12:31 AM, TMFNewCow wrote:

    John, quite frankly, yes. I do think it will sell well despite the $329 starting price, which is at a notable premium relative to the Nexus 7 and Kindle Fire.

    For the premium of $80 to $130, consumers get a device with far superior build quality, larger display, and access to a better app ecosystem of tablet-optimized apps. While not Retina territory, it has higher pixel density due to same resolution and smaller size, so you could argue it looks better than the iPad 2 that costs more. That's why I think it will do well in the small-sized tablet market.

    As far as your first-adopter geek friends, I would even argue that they're not the target audience (they might already have full-sized iPads anyway). I certainly qualify as a first-adopter geek, and as a consumer am not excited about the iPad mini, because I have an iPad 3. Although as an investor, I'm certainly excited because I think this taps a massive opportunity. I think the target here is the average consumer that's looking for a more affordable tablet, that has only had Android to choose from up until now. For those consumers, the iPad mini is a very compelling and superior alternative, for just a few more dollars.

    -- Evan (AAPL shareholder since 2006)

  • Report this Comment On October 24, 2012, at 12:40 AM, NovaB wrote:

    If the iPad is such a nightmare for adults to use then what terrors does this game boy clone have to offer?

    Seriously, the best you can do with one of these Apple gadgets is read email and play silly games. Maybe use it as a very inconvenient phone clone? As a computing device it is less than a toy. As a game machine it is 1984 and all the animal farm in electronic format.

    I could give one to my grand kids as second base, but it is too small for that and too big to be a phone.

    Think I will stick to real computers and cell phones. Apple is nothing more than sour cider.

  • Report this Comment On October 24, 2012, at 10:23 AM, slegl516 wrote:

    Sour Cider to Al,l except those of us who Enjoy thier Products and Invest in thier Company!

  • Report this Comment On October 24, 2012, at 10:42 AM, LarryBright29 wrote:

    Good costing policy for mini Ipad by AAPL.

    Bought more AAPL@614 yesterday, in accordance to tip from:

    * FT*

    ** I Know First algorithmic system**

    Good Trading!

  • Report this Comment On October 25, 2012, at 10:59 AM, randallwaechter wrote:

    Clearly many of you did not watch the product launch. The 10-inch iPad is too heavy to hold and read like a book. They are going to sell millions+++ of the mini to schools and companies...Bye-bye textbooks.

  • Report this Comment On October 25, 2012, at 11:21 AM, depthcharge47 wrote:

    I do not agree that Apple products are all hype. For years they beat the competition in reliability and customer service in surveys by Consumer Reports, CNET and PC Magazine. I have Apple computers that are more than 11 years old and still functioning well. I had my old G3 from 1999 that I donated to a community center working perfectly, but slowly by today's standards. Their products are mad of high-quality material and their iPad apps are developed specifically for the iPad and not stretched out applications from mobile phones as you see in Android tablets.

    If you want to buy a cheap GM car with lots of plastic components that's OK, but do not compare that with a top-of-the-line reliable car and complain about the price. People who buy Apple like those things and do not feel "ripped off" and could not care less about opinions from "smart" cheapos.

    I suffered with Dell computers and services and with MS software problems and judge that spending more to get a computer that did not give me headaches was one of the best thing I did. I do not miss the time spent trying to fix stupid problems from poorly designed products.

  • Report this Comment On October 27, 2012, at 10:24 AM, 48ozhalfgallons wrote:

    I see Apple much the same way as Birdtrax describes. As far as Apple being "top-of -the-line".... naa! Beauty is in the eye... etc.

    I bought one Apple desk top and have been given 2 Powerbooks. Nothing top of the line in those. The keyboards suck. My wife's 8 year old cheapie Toshiba is better quality. Hers has 3 usb2 ports; Powerbooks were later models with 2 usb1's. No wonder I got these free. Firewire2 absolutely sucks; the connectors (incompatible with Firewire1) constantly work lose.... nothing but crap, crap, crap. Remember the first Imacs? They came with OS 8.6.... But would not accept the Unix platform introduced only 1 year later. Then Apple dropped support for OS 8.6 completely within 3 years. Go get 'em fanboys!

  • Report this Comment On October 27, 2012, at 8:53 PM, mikecart1 wrote:

    Apple needs to release the iWatch, a new device that is sleek and looks like a watch but you can browse the internet, call people, and see what time it is.

    :o]

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