Does This Newest iPad Rumor Matter for Investors?

The Apple (NASDAQ: AAPL  )  rumor mill never rests, and the newest rumbling is that the company is preparing to release a new iPad model in the near future. This particular rumor isn't exactly the most exciting one, but it still has some implications for investors.

More art than science
9to5Mac has caught wind that Apple is about to add a new storage configuration to the fourth-generation iPad with Retina display and offer it with 128 GB of storage for the first time. Not only have developers begun noticing code in the newest build of iOS 6.1 pointing to such a device, but 9to5Mac's source at a "high-profile U.S. retailer" has also confirmed the move along with pricing information.

Following Apple's standard practice, it will charge an extra $100 for a bump up to the next storage configuration, which will result in this lineup.

Model

16 GB

32 GB

64 GB

128 GB

iPad 4

$499

$599

$699

$799*

iPad 4 with LTE

$629

$729

$829

$929*

Sources: Apple and 9to5Mac. *Estimated.

Apple has perfected the art of overcharging for NAND flash in a way that consumers don't even mind. Adding incremental levels of storage costs Apple very little, yet it dramatically expands the functionality of the device from the user's perspective.

This will hurt you more than it hurts me
The fact that Apple may be considering adding a 128 GB model to the full-sized iPad lineup suggests several things. First, it may indicate that there is currently healthy demand for the 64 GB model, which carries the highest gross margin. A 128 GB model will carry an even higher gross margin, since the incremental cost of going fro 64 GB of NAND flash to 128 GB of NAND flash is nowhere close to $100.

It turns out that Samsung, one of Apple's numerous flash suppliers, just recently started mass producing 128 GB NAND chips destined for smartphones and tablets.

However, any upward pressure on average selling prices due to strong demand for the 64 GB model would be offset by the lower price points of the iPad 2 and iPad Mini, which are seeing strong demand and unit sales.

It's all about positioning
Perhaps more important, the addition of a 128 GB model says a lot about where Apple may position the full-sized iPad. The tablet market is in the process of segmenting between small (7-inch to 8-inch) and full-sized (9-inch to 11-inch) devices.

The small-sized segment is primarily dominated by the likes of Amazon.com's Kindle Fire HD, Google's (NASDAQ: GOOGL  ) Nexus 7, and the iPad Mini. This category of tablets is widely considered primarily consumption devices, since the smaller form factor makes it difficult to get real work done.

On the other hand, full-sized tablets are now trying to be considered viable alternatives for productivity machines like laptops. Apple has been trying to fight the perception that the iPad is "for consumption only" for years, and only recently have full-sized tablets achieved performance levels where they can be used for productivity.

Microsoft (NASDAQ: MSFT  ) in particular is very interested in establishing a name for its Surface Pro as a laptop replacement for productivity users, which is due out next month. Surface Pro supports all legacy Windows applications since it runs on a familiar Intel chip, and is priced between Ultrabooks and Apple's MacBook Air.

Apple's addition of a 128 GB model could even be seen as a move upmarket and will still undercut the pricing of Surface Pro for prospective buyers in that market segment.

Model

Display

64 GB Price

128 GB Price

iPad 4

9.7-inch

$699

$799*

iPad 4 with LTE

9.7-inch

$829

$929*

Surface Pro

10.6-inch

$899

$999

Sources: Apple, Microsoft, and 9to5Mac. *Estimated.

Surface tablets have an advantage in productivity since they run Microsoft Office, which remains the standard productivity suite despite Google's inroads in that market with its Apps offerings. Microsoft may be about to shoot itself in the foot in that respect, since it's widely expected to be working on a version of Office for iOS.

Why it matters
What seems like a minor move by Apple to add a 128 GB storage option to the iPad could actually represent some opportunities in terms of slightly better iPad margins, higher average selling prices, and appeal to the productivity niche of the tablet market.

As traders dumped their Apple shares last week, were you resolving to hold your ground -- or even buy more? Emotions aside, Apple's growth story is far from over, and the company still has massive opportunities ahead. We've outlined them right here in The Motley Fool's premium Apple research service, and it may give you the courage to be greedy when others are fearful. If you're looking for some guidance on Apple's prospects, get started by clicking here.


Read/Post Comments (6) | Recommend This Article (11)

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 January 28, 2013, at 9:22 PM, TimKnows wrote:

    Who cares, just another show of lack of innovation on their part.

  • Report this Comment On January 28, 2013, at 9:33 PM, H3D wrote:

    "...only recently have full-sized tablets achieved performance levels where they can be used for productivity."

    Ignorant comment. Most forms of productivity require less power than most forms of media consumption.

  • Report this Comment On January 28, 2013, at 9:36 PM, jdmeck wrote:

    TimKnows - Yes just like ketchup, yet it makes Heinz tons of money.

  • Report this Comment On January 28, 2013, at 9:55 PM, BenKeel wrote:

    Yeah, It kinda does. Wow! Have you looked at the numbers on I-Pad sales or are you just joshin'?

  • Report this Comment On January 28, 2013, at 10:07 PM, alboy5 wrote:

    My first thought, ridiculous.

    My next thought is I should start programming the ipad.

    Its a high tech soap opera. Apple wants to sue Samsung's eyeballs out. Apples former and posthumous leader wanted a vendetta with Samsung. Yet, Samsung is providing 128mbyte rammies for aapl ipads and lte phone chippies for ipads.

    Pleeeeassee stop, I cant buy ipad after ipad after ipad.

  • Report this Comment On January 29, 2013, at 12:25 AM, SimchaStein wrote:

    The big elephant is lower price, due to competition. The days of high margin for Apple may be over, because Samsung's products have finally - after 5 years - caught up. This is OK, and it is lower stock price more than reflects

    And.. if/when Apple releases a new exciting product, the stock will go up.

Add your comment.

DocumentId: 2219529, ~/Articles/ArticleHandler.aspx, 4/16/2014 9:51:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement