Apple just released the iPad Mini 3. Will there be a fourth? Source: Apple.
Apple (AAPL 2.15%) may have just unveiled its last iPad Mini. It hasn't announced anything to that effect, but the recent release of the iPhone 6 Plus makes it the weakest link of Apple's entire product line.
Apple's iPad sales have suddenly declined in the past two quarters after phenomenal growth in the first four years of the product category's life. It's not just the iPad that's facing sluggish performance, though. The entire tablet market is seeing weakness because of the rise of large-screen phones. Now that Apple has a 5.5-inch iPhone, it may look to do away with its small-screen tablet.
The iPad Mini is a "tweener"
Back in 2010, Steve Jobs jumped on Apple's fourth-quarter conference call to talk to analysts about the upcoming tablet releases from competitors such as Samsung (NASDAQOTH: SSNLF). He noted the vast majority of these tablets are 7-inch designs and gave a list of reasons 7-inch tablets will fail.
Most notably, Jobs told analysts, "The 7-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad."
Indeed, the rise of smartphones with screens between 5 and 6 inches has caused a serious problem for 7-inch-tablet makers. As we've seen, many consumers are willing to spend a little more for a large-screen smartphone to save money on buying a tablet. As such, these "phablets," as the industry calls them, have been cutting into iPad sales.
If you can't beat 'em, join 'em
iPhone sales have remained strong despite fears that large-screen-phone makers such as Samsung would cut into sales. For years, many analysts have pressured Apple to make a similarly sized smartphone, and now it has.
The iPhone 6 Plus Source: Apple.
But the release of the 4.7-inch iPhone 6 and the 5.5-inch iPhone 6 Plus didn't happen because competing smartphones with bigger screens were cutting into iPhone sales. Indeed, unit sales continued to climb last year, increasing 20%. The iPhone also gained market share in high-end markets such as the U.S. throughout 2014.
Apple was losing sales to these smartphone manufacturers, but it wasn't its own smartphone that lost sales. It was the iPad Mini, or so it seems. In effect, the iPhone 6 Plus is a replacement for the iPad Mini.
Cannibalizing sales
Many analysts point to the iPhone 6 Plus and note that it will cannibalize sales of the iPad Mini and maybe even the iPad Air. But the fact is that Apple was already losing sales to large-screen smartphones. Apple might as well be the company making the smartphones that are taking sales away.
It wouldn't be the first time Apple has cannibalized its own products. The iPhone has nearly completely wiped out the iPod. The iPad seemingly cannibalizes the MacBook, but it has done more to draw people into Apple's ecosystem than it has hurt Mac sales. Now the iPhone 6 Plus is cannibalizing iPad Mini sales.
The thing is, Apple would love it if every iPad Mini purchaser bought an iPhone 6 Plus instead. The 6 Plus costs more than twice as much as the Mini, and it has better margins as well.
But that leaves the iPad Mini in a weird situation. With the 6 Plus now embedded in the product line, the iPad Mini becomes a product that Apple makes because its competitors make it, not because it strengthens Apple's business. That's not what Apple does. As a result, it might not be long before we see the iPad Mini go the way of the iPod Classic.
Will the new iPads make a rebound?
There are other reasons iPad sales have slumped. Most analysts blame longer upgrade cycles for the decline in sales after such a rapid ramp-up. There is some merit to that argument, as we've seen a large percentage of iPad buyers -- upward of 70% -- who reportedly are completely new to tablets even within the past year, and the upgrade cycle appears to be once every three years.
Last quarter, however, that number shrank to 50%, indicating that a wave of upgrades is coming. With the addition of TouchID in the new iPads, as well as some significant internal hardware upgrades, that may be enough to spur a big upgrade cycle.
But three years ago, iPad buyers were purchasing the large iPad. It's not clear that they'll upgrade to the Mini or the iPad Air, or if they'll just go out and get the iPhone 6 Plus. Time will tell, and sluggish Mini sales may cause Apple to shake up its tablet line.
