Thursday, May 2, 2013

Apple's iPad mini and cheap iPhone conundrum

Apple sold 19.5 million iPad's during its second fiscal quarter of 2013. That is a healthy 65% year on year growth. But the numbers are actually give Apple reason to worry.

iPad mini cannibalizes iPad sales. Of the 19.5 million iPad's sold by Apple in its second fiscal of 2013, 12.5 million were iPad mini's. That's about 64%. The problem with that figure is that year on year, 9.7-inch iPad sales dropped from 11.8 million in Apple's second fiscal quarter of 2012, to 7 million in the same period this year.

Basically, 12.5 million iPad mini sales, came at the cost of 5-6 million 9.7-inch iPad sales.

65% growth is sluggish in a market which has a year-on-year growth of 142.4%. While Apple increase sales, year on year by 65%, its share in the market dropped to 39.6%, from 58.1% for the same period in the previous year. This seems to indicate two things. The market for tablets is big. But the bigger market is for cheaper tablets.

What the numbers spell for the cheap iPhone? When people talk about a cheap iPhone, I am not sure what they are talking about. Apple keeps three generations of iPhone's in manufacture at any given time, so at present you have the iPhone 5, 4S and 4 all for sale. I do not think anyone suggest making an iPhone with specifications lower than the iPhone 4. This nearly three year old design with its single core processor is hard pressed to keep up with budget Android's and Windows Phone's these days.

A cheap iPhone would probably mean a new model, which is cheaper than the current flagship, but more current than a two year old model. Basically, a cheaper iPhone would replace the iPhone 4, but have better specifications to make it a more attractive choice.

The problem with this, is that it will really just replace an existing option, and it might even cannibalize sales of the iPhone 5 and 4S, like the effect the iPad mini had on the full sized iPad.

What the numbers say about the market in general. There is a big market for smartphones and tablets. When Apple entered this market, it was probably hoping it could maintain what Nokia and BlackBerry has been doing for years. Keeping the lions share of a small, but premium priced smartphone market. Nokia and BlackBerry captured the market and were able to keep prices high because there was no viable "other" operating system.

Than came Android. With Android, anyone could build an Android phone or tablet. The result. Instead of Apple having to fight to win a smaller but premium smartphone market, it has to face a new market. One, much larger than Apple ever envisioned, but where the smartphone and tablet are cheap.

This is Apple's conundrum. As the market gets bigger, mainly by offering cheaper products, it share in the smartphone and tablet market gets smaller. Apple will make tons of money, even if its market share in smartphones and tablets drops below 20%. It would be a healthy company with half of that. Or it could try to reach for a broader market with more low cost offerings, which would mean lower margins. This is probably more worrying for the tech giant. 

In the long run Apple's apprehensions go beyond that. With more and more Android devices in the market every day, developers might start to prefer that platform. If that happens, iOS might follow the path of the Mac. 

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...