Apple may have stolen the spotlight late last week for the announcement of its new iPad mini, but signs are emerging the new tablet could end up being a bit of a struggle for the company.
During the company’s financial earnings conference call, chief financial officer Peter Oppenheimer said the iPad mini’s gross margin is “significantly below” the rest of Apple’s range of products.
It adds to the controversy over Apple’s strategy to price the iPad mini above and beyond the rest of the 7-inch tablet market.
In fact, it’s such a significant shift that Apple said this is why it expects some lower guidance in the next quarter. Oppenheimer added it hopes to improve the margins through tinkering with supply chain and manufacturing issues, but ultimately the iPad mini has a lower margin than what Apple is used to.
The average margin for the last quarter was 40%. The margin for the iPad mini is likely to be in the 30% range.
It’s an interesting move for Apple, which places a high emphasis on profitable hardware. Other tablet manufacturers such as Google and Amazon prefer to sell at a lower margin and make their money by selling content.
Telsyte research manager Foad Fadaghi says Apple needs to be price competitive in a format where it didn’t have the upper hand.
“In competitive markets like small format tablets, the reality is that Apple needs to be price competitive. They can’t just charge whatever they want.”
Apple’s position in the small-format tablet market is a troublesome one. With so many competitors offering cheaper tablets, the company has to provide a credible argument for spending more money on a device that doesn’t necessarily offer more features.
As Fadaghi points out, Apple will have to rely on making up the money it lost through lower margins via the iTunes content system.
“Apple makes a lot of its money from the ecosystem, so it can reduce margins for the idea of selling content or eBooks in a format that’s easier to read.”
Meanwhile, Apple has made another product announcement – although it may not be what you think.
Steve Jobs, before his death, started working on a yacht. Reported on by Walter Isaacson in his biography of Jobs, the yacht was built to Apple standards of design with a sleek, minimalistic feel.
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Now, the yacht has been unveiled in The Netherlands. It’s an elegant piece of design made of glass and aluminium; something you’d expect to come from an Apple studio.
Jobs may not be around to enjoy the indulgent luxury, but it certainly holds his stamp: there are 27 iMacs used to help run the thing.
Watch video of the unveiling of the yacht.