iPad Mini Creating Loses, Apple Remains Confident
Even though only six months have passed since Apple’s iPad mini release, it seems that the product is already creating losses in the company’s accounts. But, according to the analysts in the market, the iPhone manufacturer is willing to support the current financial drains if this will help them sell more iPad devices.
Furthermore, the low price of the iPad mini is one of the motives for which, on Tuesday this week Apple announced a profit decrease in the second Q of this year. According to the last reports, Apple’s profits dropped from $11.6 billion (figures reported last year, during this period) to $9.5 billion, and the company’s revenue went from $43.6 billion to $39.19 billion.
Peter Oppenheimer, Apple’s CFO stated on Tuesday, during a conference call on the company’s profits, that the earnings brought by the iPad mini are way below the company’s average earnings. Even though the iPad mini shipments are now becoming a bigger part of the iPad shipments, the imposed price of only $329 is clearly creating a gap in Apple’s revenues and profit figures.
Oppenheimer also claimed that the company prefers to see the big picture and to act on a long term plan, even though on short term they would have to make some compromises.
On the other hand, the sales in the iPad area have grown significantly, counting a total of 19.5 million pieces sold in the last quarter, thus reporting an increase of 65 percent compared to the second quarter of 2012. We can also observe that Apple has been selling way more iPad Mini devices in the last quarter than it did in the first quarter of 2013, when the company began the shipments of this tablet. Apple’s CEO Tim Cook, stated that the iPad customers who acquired the tablet for the first time represented a big part of the iPad mini sales.
But, unrelated to the low margins of the iPad Mini, Apple has also reported a decrease in the sales of the Mac, and a slight increase in the sales of older versions of the iPhone, meaning both variations have also affected the company’s profit during this last quarter. The CEO stated that it would be unfair to compare this quarter’s results to those reported last year in the second Q, considering that back then, Apple was selling more devices with a significantly bigger price.
iPad Mini’s low price has definitely put a mark on the profitability of the iPad tablet, and analysts believe that the tiny device is going to keep drawing back sales of its bigger brother the iPad, which has a bigger price. However, if the shipments of the iPad mini are increasing, then the financial revenue might be covered by the big number of sales, according to the analysts.
One of the industry analysts from Technology Business Research, Ezra Gottheil said that margins would’t be an issue as long as the iPad Mini sustains market share and market growth.
The analyst also mentioned that Apple is ready to coordinate a bigger base of iPad Mini users and the membership in their community. For now, the iPad Mini represents for Apple a way to attract clients that might also buy other products from them as long as they have been satisfied with their first acquired device.
He also mentioned that Apple is focusing now on enlarging their market share and not profit.
David Tan, assistant professor of strategy in Georgetown University, says that margins are an instrument for checking a company’s well-being, and that Apple assumed quite the risk when they decided to lower the margins through the low price of their iPad mini.
Tan also said that if a client can’t see the difference in quality, he won’t give the extra money for the product. The mini tablet is seen as a smaller iPad, and as as we know the built in hardware is older than that of the 9.7 inch tablet.
Considering that Apple is one of the most profitable companies nowadays, Tan says that regardless to the actual figures, the revenue that would return to the company from increasing their market share would be considerably increased in the near future on other areas than that of the iPads.
Tan went further and stated that the profits for this area may actually be higher, if the price is set accordingly and if the customer number keeps growing.
By September, the end of the fiscal year 2013, the iPad mini shipments are expected to grow at about 43 million pieces, and by the end of June, when this financial quarter ends, the shipments are estimated to be somewhere at 10.5 million pieces, according to the analysts from Cannacord Genuity.
Through a research note published on Wednesday, Cannacord’s analyst Michael Walkley states that the iPad mini is going to keep eating out of the sales of other tablets and of the 9.7 inch iPad. However, the market share for iPads is well adapted and keeps growing.
Walkley also mentioned in his note that he believes the iPad mini to be a keystone in increasing Apple’s international market, and that it is going to lead to bigger sales in fiscal 2013 thanks to the growth of their international distribution segments.
