In just a matter of months, Apple (NASDAQ:AAPL) is expected to launch second-generation iPad Mini models. The newer versions are widely expected to follow Apple's trend of high-resolution Retina displays, but that's not the most important strategic question that investors should have for the iPad maker. Once the new models are inevitably unveiled, what happens to the first-generation iPad Mini?
Will Apple kill it or keep it around at a lower price point?
With the iPhone over the past couple of years, Apple has stuck with a strategy of subsequently moving older models to lower price points once new iPhones are released. That may be about to change this year, as Apple is probably about to finally start a real iPhone family and launch two models this year.
From a strategic standpoint, the iPad has always been a curious product family in its relatively short life. The original was launched in 2010. The iPad 2 was fully redesigned just a year later in 2011. Apple added a Retina display to the third-generation model in early 2012, keeping the iPad 2 in production while moving it down to $399. Just months later in late 2012, Apple surprised everyone with a fourth-generation model, killing the third-generation model in the process but still keeping the iPad 2. Apple has now used the same industrial design for more than two years.
Investors already know that Apple has created a price umbrella at $329 for tablet rivals to take shelter under. If Apple kills the non-Retina iPad Mini, this umbrella will be preserved and competitors will continue to chip away at Apple's market share. If Apple decides to keep the non-Retina iPad Mini in production while moving its price down to a range of $230 to $250, it will put significant pressure on rivals but risk further margin contraction.
There have even been rumors that Google's (NASDAQ:GOOGL) second-generation Nexus 7 is going to move up in price to target $229. The new version is expected to feature a 1920 x 1200 display and launch in the near future, predicts IHS iSuppli. It's possible that the first-generation iPad Mini could end up competing directly with the second-generation Nexus 7 at $229, if Apple cuts $100 off the price. The second-generation Nexus 7 would inevitably trump the first-generation iPad Mini on specs, so Apple would need to rely on other strengths to hold its own.
Keeping the first-generation iPad Mini around at a lower price point would be an aggressive move that would end up paying off in the long term, even if there's a short-term margin hit.
Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends and owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.