Deliver A (Profitable) Retina iPad Mini In 2013

The importance, and weakness, of the iPad Mini

By all accounts, the iPad Mini has been a barnstorming success for Apple; almost overnight, it has taken the lion's share of all iPad sales, which are, in turn, the single biggest area of growth for Apple. In many respects, one could argue that it is Apple's most important product for the next 5 years; the product with the best growth trajectory, and largest untapped market potential. It also has a very clear, but expensive path for improvement. In a word: Retina.

Unfortunately - and by Apple's own acknowledgment - the iPad Mini already carries a lower profit margin than Apple is typically willing to accept. This has hurt Apple in many ways. Shareholders (rightly or wrongly) hold Apple to an unusually high standard; they want to see growth in market share, revenues and profits, all simultaneously. The iPad Mini currently delivers on two metrics (market share and revenues) but at the expense of profit margins.

So how can Apple refine and enhance the iPad Mini - a future-critical product - whilst also extending their market share and revenue in the face of at-cost/low margin competition... and deliver the profit margins demanded by Wall Street at the same time...?

Step One: Recognise where the puck is going

The iPad Mini is a fabulous product, but every single review acknowledged that it would be significantly closer to perfection if it carried a retina display (without concomitant trade-offs in size, power and battery life). The next iPad Mini will almost certainly carry a retina display - it is simply a question of when. The realistic-but-optimistic prediction would be some time in October 2013 (just in time for the critical holiday season). The more conservative prediction might have it in Spring 2014.

Step Two: Power Up

But how will Apple spec the Retina iPad Mini? Aside from incremental improvements to the screen technology itself (such as the improved LEDs used to power the iPad 4 compared with the iPad 3), the biggest determinant in performance will be the SOC.

As someone who owns an iPad 3, I cannot imagine that they would be willing to use the A5X. It is an inelegant, power hungry, erratic performer, and widely reported to be a real nightmare to develop for. Apple knows this; the A5X was borne out of necessity (that is, the need to deliver the iPad 3 in early 2012, before a more competent SOC was available), and undoubtedly the reason why the iPad 3 was replaced so soon. The A5X is the shortest-lived processor in iOS history, and it seems unlikely that it will be resurrected in any form for the Retina iPad Mini. So A6X it surely must be.

Step Three: Spread betting

An iPad Mini with a Retina display and an A6X? So basically the iPad 4 shrunk to a 7.9" screen size? Sounds pricey, right?! Margins being squeezed as they are already on the iPad Mini, there is surely no way to deliver this spec as an outright replacement for the current Mini, whilst retaining the existing price points. So what does Apple do?

In short - keep the original iPad Mini around, and upsell the Retina iPad Mini. In much the same way as the iPad 2 has stayed around in the Retina era, so too is there a role for the non-retina iPad Mini. Pricing tiers would work as follows:

16GB iPad Mini (1st Gen): $329

32GB iPad Mini with Retina Display: $429

64GB iPad Mini with Retina Display: $529

128GB iPad Mini with Retina Display: $629

There you have it. Simple, but effective. This keeps the all-important entry price unchanged, but provides a strong incentive to upsell customers on a much superior device for a modest additional outlay. And given the phenomenal margins made on memory, Apple would have sufficient breathing room on a 32GB+ SKU to absorb the additional cost of delivering a Retina+A6X device whilst still retaining an acceptable/ improved level of profitability.
Over to you...
What do you think? Does this framework sound like a straightforward answer to Apple's iPad Mini dilemma? Do you agree that Apple should/will consign the A5X to the graveyard, and only deliver a Retina iPad Mini when it can do so with the A6X inside? Would you be upset by a lack of 16GB SKU on the Retina model, or do you (like me) feel that 32GB is the minimum comfortable capacity for a Retina device anyway...?