The small-sized segment of the tablet market is where it's at. Growth of smaller tablets is expected to drive much of the gains in the broader market in the coming years, thanks in large part to the greater mobility that the form factor offers accompanied by attractive price points.
Apple's (NASDAQ:AAPL) foray downmarket with the iPad Mini is a testament to how powerful this trend will be, particularly after Amazon.com (NASDAQ:AMZN) and Google (NASDAQ:GOOGL) proved that Steve Jobs was wrong when he said that 10-inch tablets are the perfect size. Even Microsoft (NASDAQ:MSFT) won't be able to ignore smaller tablets, and is likely preparing a 7-inch Surface as we speak.
The iPad Mini is perched at the high end of that market segment, though; its $329 starting price represents a significant premium to the $199 that buys you a Kindle Fire HD or Nexus 7.
The Mac maker has gotten aggressive in other parts of its business recently, dropping Retina MacBook Pro prices and making the iPhone 4 more affordable in emerging markets. Is the iPad Mini about to get a price cut?
KGI Securities analyst Ming-Chi Kuo thinks that Apple is preparing to roll out a more affordable iPad Mini model to fend off competition. This wouldn't necessarily be a price cut to the existing model, but rather a slightly modified variant. Kuo has made a name for himself within the Apple rumor mill thanks to being pretty accurate when it comes to supply chain rumblings.
The Retina iPad Mini is expected later this year, but Kuo believes Apple's still facing low yields on 7.9-inch Retina displays, which is why he thinks the company will release a lower-cost iPad Mini in the meantime. Apple could finagle lower component prices, use different production processes, remove the rear camera, or reduce storage capacity to achieve lower price points in the range of $199 to $249, according to Kuo.
Any such move wouldn't likely translate into major boosts in unit sales, but instead could defend market share from lower-cost rivals. Google's second-generation Nexus 7 is expected this summer, with a third-generation Kindle Fire due out shortly thereafter. Assuming rivals stand pat at $199, there's still a price umbrella under the iPad Mini.
It's highly debatable if Apple would release a low-cost iPad Mini. The company is typically hesitant to reduce prices just to grow market share, especially if it results in quality trade-offs. At the same time, it's still very like to release an affordable iPhone this year.
A cheaper iPad Mini could cause even more downward pressure on margins, as the iPad Mini already carries a lower gross margin. Kuo may have a strong track record, but I think he's wrong on this one.