One of the great mysteries of 2014 was why Apple (NASDAQ:AAPL) put so little effort into updating the iPad Mini 3. The device got less than a minute of stage time and only 1 meaningful new feature (Touch ID) this year with no significant performance boost.
That singular feature may not justify the $100 price difference, and could potentially imply that Apple doesn't care all that much about the small tablet market anymore. After all, the company has suffered modest margin dilution ever since entering that particular market segment 2 years ago.
Well, China's Economic Daily News is offering up another potential explanation why the iPad Mini was somewhat neglected this year.
Death to the iPad Mini?
The report claims that Apple is preparing to discontinue the iPad Mini lineup next year, instead shifting its strategy to focus on the rumored iPad Pro while continuing to update the traditional 9.7-inch iPad Air models. The Economic Daily News cites an anonymous vendor as saying unit volumes are expected to fall by a third in the coming year.
One possible contributor is the rising popularity of phablets, including Apple's own iPhone 6 Plus, since there is only a modest difference in display size to the 7.9-inch iPad Mini. Phablets cannibalizing small tablets to some extent seems inevitable.
Does this rumor have any legs?
It doesn't make strategic sense that Apple would take the time to enter an entirely new market segment only to exit it 3 years later, particularly if the argument related to either margin concerns or cannibalization. Apple doesn't make product decisions based solely on financial implications, nor does it fret about cannibalization between product categories.
You've probably heard this a thousand times by now, but Apple just wants to create amazing products. Even though the iPad Mini 2 offers better value now than the iPad Mini 3, that doesn't mean that Apple thinks small tablets are inherently bad products.
A better possible explanation
There's another potential reason why Apple didn't give the iPad Mini 3 a more substantial upgrade like the A8 chip. The A8 and A8X are both manufactured on a 20-nanometer process, compared to the 28-nanometer process on the A7. This transition has proven extremely costly, according to fellow Fool and resident semiconductor guru Ashraf Eassa:
It has been widely reported that the cost per transistor at the 20 nanometer manufacturing goes up from the various 28 nanometer nodes. The A8 has about 2 billion transistors on the 20 nanometer node, meaning it is probably quite a bit pricier than the A7 which has 1 billion transistors on the cheaper 28 nanometer process. This may be why Apple chose not to upgrade the lower margin iPad mini to the A8.
Considering this steep cost increase, Apple wouldn't be able to add the A8 to the iPad Mini 3 without either increasing the price or taking a substantial margin hit. Apple boosted the iPad Mini price from $329 to $399 last year, and probably knew another price bump would not sit well with consumers.
While iPad unit sales are unquestionably hitting a speed bump right now, the company is still selling plenty of tablets. It's not like the recently deceased iPod Classic, which was hardly selling any units as Apple was having trouble efficiently sourcing the legacy components.
What's more likely is that Apple will keep the iPad Mini around while also launching an iPad Pro in a move upmarket, and the possible higher margins on the Pro could offset the lower margins on the Mini.
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.