Yes, the iPad Mini is cannibalizing sales of the larger iPad

January 24, 2013
Obsession
Mobile Web
January 24, 2013

Average-iPad-sale-price_chart

Crunching some new data released by Apple yesterday reveals: For the first time since its 2010 launch, the iPad’s average sale price has dipped below $500. It’s now $467.

That helps answer a question that’s been burning ever since Apple released the iPad Mini: Would the smaller tablet, with a base price of $329, cannibalize sales of the larger iPad, which starts at $499? The company doesn’t break out sales by type of iPad, but the 8.1% decline in average sale price last quarter suggests that, yes, customers are opting for the iPad Mini over the iPad.

Apple CEO Tim Cook addressed this issue on the company’s conference call yesterday, saying of iPad sales, “There is some cannibalization there.” He also said that overall iPad sales were cannibalizing sales of Mac laptops and desktop computers. But as we noted yesterday, Cook says he isn’t concerned:

I see cannibalization as a huge opportunity for us. One, our base philosophy is to never fear cannibalization. If we do, somebody else will just cannibalize it, and so we never fear it. We know that iPhone has cannibalized some iPod business. It doesn’t worry us, but it’s done that. We know that iPad will cannibalize some Macs. That doesn’t worry us.

That’s clearly the right strategy, but investors, who have traded Apple’s stock down more than 10% today, still care about how much cash the company can wring out of each device it sells. And it’s clear now that the introduction of the iPad Mini has meant less revenue and less profit per sale, even if overall iPad sales surged to a record $10.7 billion and 22.9 million units last quarter. Apple’s profit margin fell to 38.6% last quarter:

Screen Shot 2013-01-24 at 12.32.12 PM

Cannibalization is also relevant to Apple’s decision on whether to introduce a lower-end iPhone. As Horace Dediu observes in a smart post today, the iPhone’s average sale price has held steady despite the availability cheaper, previous models, likely because wireless carriers are pushing hard to sell the high-margin iPhone 5 because it consumes more data, which is how the carriers make money. But the dynamic may not be the same for a “cheap iPhone,” which could end up eroding the average sale price.

And it’s even further relevant to the question of when Apple might introduce another product—like, say, a television. The iPhone cannibalized the iPod, the iPad is cannibalizing the Mac, and the iPad Mini has started cannibalizing the iPad. So what’s the next product to keep this chart heading in the right direction?

Screen Shot 2013-01-24 at 12.41.15 PM

Cook, speaking yesterday, said the answer to that question is not a new product but the iPad:

We have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is. And I think it is clear that it’s already cannibalizing some and I think there is a tremendous amount more opportunity there. And as you know, I have said for two or three, actually three years now that I believe the tablet market will be larger than the PC market at some point. And I still believe that. And you can see by the growth in tablets and the pressure on PCs that those lines are beginning to converge.

That makes sense enough, and it’s silly to be too doleful about what was a record quarter. But if the iPad is the future of Apple and its greatest potential for growth, then it’s notable which direction this chart is heading:

Change-in-average-iPad-sale-price-since-Q1-2011_chart

Just a final note about the data in this post: Until yesterday, Apple had lumped together sales of accessories into their corresponding categories for iPhone, iPad, etc., which made it difficult to calculate the average sale price of the devices alone. Now, Apple has separated out accessories into a separate category (and released data under the new rubric for the past eight quarters). The company releases units shipped and revenue for each device, making it possible to derive an average sale price. Here’s my math for the iPad.

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