What Apple's New iPad Air Means for Investors

iPad Mini with Retina Display. Source: Apple.

The first eight months of 2013 were a little slow for Apple (NASDAQ: AAPL  ) investors. Thanks to shifting its product cycle in 2012 and concentrating announcements in the fall, Apple went for a much of this year with no product unveilings. Apple kicked off the festivities last month by introducing two new iPhone models, and has now followed up with its iPad event.

Here's everything Apple had to say today.

In other news
Apple likes to give various updates at the beginning of its presentations. The company said that 64% of devices are already running iOS 7. There are now 20 million users of the new iTunes Radio service, up from 11 million last month. Pandora shares actually spiked on that revelation, so the figure may not have been as high as Pandora investors feared. The cumulative developer payout has now jumped to $13 billion, as iOS app monetization continues to accelerate.

Taking jabs at Microsoft
Apple took numerous jabs at longtime rival Microsoft (NASDAQ: MSFT  ) during the event. Apple is making OS X Mavericks free for everyone, removing the negligible pricing hurdle that could be holding back possible adopters on the fence. Apple doesn't really need the extra $20 to $30, and would rather have more users unify in one version. The days of paying upwards of $199 for software upgrades are over, Apple asserted while displaying Windows 8 Pro.

The free software doesn't end there. Apple is also making iWork on OS X free, following a similar move for the iOS version. Again, Apple took a chance to poke at Microsoft Office 365, which costs $99 per year.

Intel Inside, at last
While other PC vendors have already begun to upgrade to the latest Intel (NASDAQ: INTC  ) Haswell chips, Apple has been a bit slow getting the newest processors into its MacBook Pro lineup. Apple added them in the MacBook Air over the summer, but many have been anxiously awaiting the professional lineup to follow suit. Apple is also aggressively dropping the entry-level price of the 13-inch Retina MacBook Pro to $1,299, while the larger version saw a $200 price drop as well.

MacBook Pro with Retina Display. Source: Apple.

Apple also quietly killed the 15-inch non-Retina MacBook Pro, signaling its intent on consolidating under Retina models eventually. As the costs of Retina display panels come down, Apple hopes to spur adoption by reducing prices.

Without further ado
Of course, the feature presentation of today's event was the iPad. Apple says it has now sold a cumulative total of 170 million iPads. Through the June quarter, Apple had sold 155.1 million iPads, which implies that it likely sold nearly 15 million iPads in the September quarter that just closed. That would represent no sequential slowdown from the 14.6 million units sold in the June quarter -- impressive, considering how widely publicized Apple's upgrades are.

iPad Air. Source: Apple.

Apple is borrowing its Air branding from the Mac lineup and has now renamed its full-sized tablet the iPad Air. As expected, the device takes design cues from the iPad Mini, and maintains the same pricing strategy as before.

Perhaps more interesting, the use of the "Air" moniker also suggests that Apple is looking to segment the tablet market. We've been hearing a lot about a possible 12.9-inch iPad in the works, which could easily become the iPad Pro. That possible device could have considerable interest in the enterprise, especially if Apple released a first-party hardware keyboard accessory.

The iPad 2 lives to fight another day. Originally released in 2011, Apple is still keeping the device around at the $399 price point despite its aging hardware. Localytics just released data suggesting that the iPad 2 remains the most popular model, so keeping it around may still be the right call. That's especially true if it comprises bulk purchases within educational and enterprise environments where cost matters more than raw performance. For instance, the thousands of iPads that American Airlines has just deployed are all iPad 2 models.

Things get a little more interesting when we turn to the iPad Mini, which did indeed get a Retina display. When the original iPad Mini launched, it had the internals of the iPad 2 stuffed inside a smaller form factor. That meant saving on costs by using older components in order to price the device at $329 while maintaining Apple's margin profile. This time around, the iPad Mini with Retina display is getting the latest and greatest A7 chip alongside the high-resolution panel.

The net result is that Apple is increasing the price to $399. Displays are always the most expensive component, typically comprising around 40% of the bill of materials, so Apple is passing along this cost increase to the consumer. Google and Amazon have both raised prices of their own tablets, in part because of the shift to high-resolution displays. However, the first-generation iPad Mini is also sticking around, while moving down to $299.

Here's the new lineup.

Model

Starts at

iPad Mini

$299

iPad Mini with Retina Display

$399

iPad 2

$399

iPad Air

$499

Source: Apple.

There have been reports that Apple is facing supply constraints with the iPad Mini with Retina display. These appear to be true, as Apple's only indication of availability is "coming later in November," while the iPad Air ships on Nov. 1. There also was no mention of a gold option, which some rumors had suggested.

Also absent was the Touch ID fingerprint sensor in any of the iPads. This makes sense, as yields on these sensors are reportedly low and Apple is still behind on catching up with iPhone 5s demand (Apple currently quotes shipping times of two to three weeks). Allocating scarce supply of these sensors to the highest-margin product available is the right move to make.

Stop me if you've heard this one before
iPad unit growth has seemingly decelerated in recent quarters. It's important to note that the full-sized iPad has been using the same design since early 2011, so some amount of demand stagnation is expected. By giving the larger version a redesign, Apple can reinvigorate demand for its high-end offering.

At $399, the iPad Mini with Retina Display is priced at a considerable premium to comparable devices, and the seemingly low production rates won't make things any easier. This might sound familiar, but Apple's biggest challenge over the holiday shopping season will probably be its ability to make enough stuff for everyone.

Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.


Read/Post Comments (14) | Recommend This Article (47)

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 22, 2013, at 4:15 PM, jdmeck wrote:

    All is well.

  • Report this Comment On October 22, 2013, at 5:33 PM, wildeweasel wrote:

    So, really nothing new then except incrimental upgrades and price drops. Oh well, maybe next time.

  • Report this Comment On October 22, 2013, at 6:39 PM, TOM48 wrote:

    I want my Apple TV.

  • Report this Comment On October 22, 2013, at 7:46 PM, tcolgcedu wrote:

    Nice report, Evan. I would really like to see Apple do something to make the new products a better bargain for buyers. The analysts will likely report that the new iPads are evolutionary, rather than revolutionary. I think that the simplest way to give people more bang for their money would be to go to 32 GB at $499, 64 GB at $599, and 128 GB at $699 models. Surely flash storage prices have dropped considerably since the original iPad was released. I suspect Apple would get a very favorable product response by doubling the flash storage in each product. I doubt that the build costs for doing this would be that great, as USB flash storage cost continue to drop.

  • Report this Comment On October 23, 2013, at 2:27 AM, OHGtop10 wrote:

    I have never been interested in running out and getting a new I-pad. I've never owned an I-pad. Today Apple convinced me I really do want one and will most likely get it this November. I'm also going to get a 5s when they have them in their stores. I really like the re-branding of the I-pad to the I-pad air and it really looks light and sleek. I'm long AAPL shares and if it goes to $600 plus I can afford to get a Mac Pro or Mac book air.

  • Report this Comment On October 23, 2013, at 2:44 AM, OHGtop10 wrote:

    I think earnings should be good. I phones should be up yoy. I phone s guidance for next quarter should be excellent as long as Apple can make enough of them. My dark horse for earnings is Apple bought back a bunch of shares in the last quarter. My one hesitation was that I thought I-pad sales might be much worse. I just read an article that AAPL most likely sold 15 million I-pads which is slightly higher Yoy. This should also bode very well for the New I-pad air. Good luck to all.

  • Report this Comment On October 23, 2013, at 9:02 AM, Mathman6577 wrote:

    @OHGtop10 --- I agree with your comments but no matter what is reported at the earnings call next week some head-in-the-sand analyst will have something negative to say -- like "margins are down from 39.7% to 39.2% -- it's time to sell $AAPL". or "It's disappointing Apple didn't announce a really low-end (junky) iPad to compete with (junky) Samsung tablets".

  • Report this Comment On October 23, 2013, at 9:49 AM, seacoastnh wrote:

    Nothing new here from Apple just rehased mini Ipads and same old products. Taking jabs at Microsoft shows that Apple maybe abit insecure. The days of Steve Jobs invention mill seemed to have slowed to a mere crawl. Again nothing new just re-hashing of the old stuff.. Apple should be taking jabs at Droids and Google who are taking tablet market segment away. I guess every dog has its day. That said I like my old Ipad2..

  • Report this Comment On October 23, 2013, at 9:51 AM, KombatKarl wrote:

    I said with the first mini that you were an idiot if you bought one, old hardware for a $329 price tag. This time, the hardware looks great but they upped the price to $399? No thanks. I'll stick to my Nexus 7's. Similar hardware, same apps, but half the price.

  • Report this Comment On October 23, 2013, at 11:32 AM, MDMDoyle wrote:

    I agree the mini has some work to seperate itself from its pack of competitors. The ipad air doesnt exceed all expectations but stands out from the rest of the market in a few key categories.

    Check out this article comparing the new models to the top microsoft, samsung, google and kindle.

    http://arstechnica.com/gadgets/2013/10/the-ultimate-tablet-c...

  • Report this Comment On October 23, 2013, at 11:49 AM, MDMDoyle wrote:

    I've been reading on a lot of pundits lately who criticize every release as evolutionary rather than revolutionary and its driving me crazy (not here in particular, I've been trolling a lot of other websites today). Anyone who runs out and buys a new iphone and new ipad every single year has either too much disposable income, is financially irresponsable or obsessed.

    Phones obviously and typically have a 2 year contract so the comparison should really be to the 2 year old model, and here in Canada a lot of people get binded into 3 year contracts. This comparison should be the same for ipads in my opinion. I think Apple leaving the iPad 2 on the market will also help exemplify the iPad Airs more than an incremental improvement.

    If I ran out and bought an IPad Air today I would expect to be satisfied with it for many years to come (as I have been with all my Apple products their longevity is impressive).

    Even the pundits are obsessed with Apple wether they like it or not. Steve Jobs or not, it is still the business model everyone is trying to replicate.

  • Report this Comment On October 24, 2013, at 9:22 AM, Mathman6577 wrote:

    So adding 64-bit processing to a tablet is not innovation?

  • Report this Comment On October 25, 2013, at 11:53 PM, longbottom wrote:

    Good review of the products!

  • Report this Comment On October 26, 2013, at 9:43 AM, cmalek wrote:

    Well, at least the Fruitco Faithful are happy.

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