You're Going the Wrong Way, Apple

All of the chatter surrounding Apple (NASDAQ: AAPL  ) these days is about iOS devices getting cheaper, so it may come as a surprise to find that the tech giant's new toy is a more expensive iPad.

Apple is adding a fourth iPad to its fourth generation of tablets, beefing up its line of iPads with crisp Retina Display graphics. The only difference this time is that the new iPad offers 128 gigabytes of storage.

The extra capacity obviously won't come cheap. When the new device becomes available next week, it will set shoppers back $799 for the basic Wi-Fi model. The three current models fetch $499, $599, and $699 for 16, 32, and 64 gigabytes.

It's an interesting strategy. Apple shifted toward cheaper products late last year. It rolled out a smaller iPad Mini starting at $329 in time for the holiday shopping season. When the iPhone 5 hit the market, Apple lowered the price of the iPhone 4S from $199 to $99 with a two-year carrier contract, and kept the iPhone 4 around for free with a two-year contract.

As Apple tries to reach a broader audience it only makes sense to introduce cheaper products. The strategy bears a cost, though. Apple's average revenue per iPad fell to $467 during the holiday quarter, well off the $568 it was collecting a year earlier. Apple's overall gross margins have shrunk from 44.7% to 38.6% over the past year.

The limbo bar was supposed to keep inching lower. Reports earlier this month indicated that Apple was working on an even cheaper smartphone for overseas markets where wireless carriers aren't aggressively subsidizing the iPhone.

It was also easy to wonder if $329 was as low as Apple would go on the tablet front. Amazon.com's Kindle Fire and Google's Nexus start at less than $200. Apple is no stranger to Amazon and Google as competitors these days, though it's hard to go too low without cannibalizing the sales of full-sized iPads.

Will the $799 tablet sell briskly? The only market here is for avid tablet users that store enough media on their devices to the point where 64 gigs isn't enough. Take the time to work the math when Apple reports again in three months. Divide the company's iPad revenue by the number of tablets it sells to see if Apple is above or below this past quarter's $467.

Either way, we all know that this isn't the last that we've heard from Apple. Cheaper products are likely coming, at least on the iPhone end.

An Apple a day
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Read/Post Comments (11) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On January 29, 2013, at 8:37 PM, pwauburn wrote:

    Would you expect Cadillac to introduce a better model car and sell it for cheaper than their lesser models? Would you expect any company in any industry to sell a better product at a lower price than one of their lesser products?

    Why would you expect Apple to do it?

  • Report this Comment On January 29, 2013, at 8:44 PM, daveshouston wrote:

    What a stupid article!

  • Report this Comment On January 29, 2013, at 8:53 PM, moneysux wrote:

    You know it is a ridiculous piece of literature when it says things like: Amazon's and Google's $199 tablets COST LESS THAN $200.

    The retardation since the pause has slowed down but apparently not stopped. Long aapl, phones, ipads, ipods, smart watch and smart tv. I am confident and can wait out all the street's irrationalities.

  • Report this Comment On January 29, 2013, at 9:10 PM, HiramWalker wrote:

    If Seth Meyers wasn't working for microsoft...

    Really, Munarriz? REALLY?

  • Report this Comment On January 29, 2013, at 9:11 PM, TreyAnas wrote:

    I think his point is not that the new model is mispriced, but that Apple should be creating products at lower price points along with the current portfolio.

    While this idea is shared by many people, but that doesn't make it wrong. It would be a newish thing for Apple. They have a pretty good envelope with the iPod, but haven't reached downmarket with the iMac or iPhone. And just a little with the iPad Mini.

  • Report this Comment On January 29, 2013, at 9:20 PM, SparkyTheClown wrote:

    Really? You don't think a 128gb model wouldn't be wanted by professionals like architects or other creatives who interact with large files or intensive apps?

  • Report this Comment On January 29, 2013, at 9:46 PM, Plimeter wrote:

    This article is a waste of time. Author clearly knows little about Apple. Apple is a premium product and to compare its pricing with $199 tablets is pure nonsense. Is this author suggesting he knows more about tablet price points than Apple does? Some similar minded pundits criticized Apple's pricing on the iPad mini, saying it was too high. Yet the mini is selling faster than Apple can produce. I think Apple knows how to price it's products! By the way, Apple's tablet sales growing very nicely.

    Apple released this latest iPad to fill a need. There are many, myself included, who want more storage capacity. Obviously, Apple should charge more for this model.

  • Report this Comment On January 29, 2013, at 9:48 PM, cnyap wrote:

    Selling many more products with less profit per item is not the end of the world, and is the right solution to the situation they are in.

    I think a lot more can be done with TV.

    Radios are way too basic too....an Apple AM/FM (with digital FM) and WiFi internet radio capability for example.

    There are lots of areas for new gadgets.

  • Report this Comment On January 29, 2013, at 10:16 PM, tompanderson wrote:

    Others have said it well. Stupid article with no insight. I should reconsider my membership.

  • Report this Comment On January 29, 2013, at 11:10 PM, 2sour wrote:

    Agreed ... stupid article. I guess Apple should just close up shop ... they have no way to win. If they sell less expensive products, profit margin will suffer ... if they continue to sell high-end products, they'll lose market share. Either way, they'll be out of business soon, so we should all be worried and sell now at whatever price we can get.

  • Report this Comment On January 30, 2013, at 10:53 AM, Morgana wrote:

    I am so glad some of the commenters are saying the same thing. Do we expect BMW to put out a cheap model to compete with Kia's?

    When was the last time that stock analysts demanded that car company's come out with something innovative EVERY YEAR?

    PULEEZE.

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