Apple Inc. (NASDAQ:AAPL) has made its living over the last 30 years providing high-quality, premium-priced devices and hardware for consumers, riding waves of envious profit margins to create obscene revenue and earning numbers. However, as the company’s growth in the premium marketplace began to slow, the company started an evolution. First, there was the iPad in 2010, then in 2012 came he iPad Mini. And with the smaller device and smaller price, Apple revealed a change in its business model.
Apple decided to increase sales by making devices that were more accessible and was willing to sacrifice some margins. And what do some analysts say about this? They get the impression that Apple Inc. (NASDAQ:AAPL) is hunky-dorey with it. You know, this kind of reminds us of what Amazon.com, Inc. (NASDAQ:AMZN) has been doing with the Kindle line of e-reading devices – develop a quality product at low price point to draw in customers, then get your margins with complementary accessories and services.
You don’t think …? Maybe?
“We are willing to make short-term trade-offs … where we see long-term potential,” said Apple Inc. (NASDAQ:AAPL) CFO Peter Oppenheimer during the company’s earnings call Tuesday. In this case, he was referring to the trade-off of margins in exchange for growth in sales of iPad devices with the addition of the Mini to the lineup.
“As long as they are solidly profitable, margin isn’t an issue. Their issue is sustaining growth and market share,” said analyst Ezra Gottheil of Technology Business Research.
In the March quarter, sales of iPads (including the Mini) were up 65 percent over the same period in 2012, before there was a Mini. And sales of the Mini were up in the March quarter from the December quarter when the device first became available. What we dont’ know yet is how much those iPad Mini purchases affected overall sales – for example, can Apple Inc. (NASDAQ:AAPL) determine that for every $329 iPad Mini that was sold, it generated n additional $399 in sales of apps, software and services to go with that iPad Mini? Obviously we’re not sure, but it sure seems like that is the goal of Apple with this smaller device.
And if that is the case, then why shouldn’t we expect a lower-priced iPhone? After all, isn’t Apple becoming Amazon.com, Inc. (NASDAQ:AMZN)? We’d like your thoughts about this. Has Apple Inc. (NASDAQ:AAPL) adjusted its business model, or is the iPad Mini just the exception as a “gateway”device to get customers inside the ecosystem?
DISCLOSURE: I own no positions in any stock mentioned.