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What's Apple doing with the iPad Mini 3?

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To say that Apple glossed over the iPad Mini 3 last week would be putting it mildly. All told, Apple spent exactly 35 seconds discussing the device. And with good reason, the iPad Mini 3 is essentially the same device as the iPad Mini 2, the lone enhancements being Touch ID and new color options.

This is somewhat strange.

Typically, new hardware models from Apple are positioned as attractive and compelling upgrades from preceding devices. Just look at the iPad Air 2, for example. Compared to the original, the iPad Air 2 is thinner, has a more advanced processor, faster Wi-Fi, Touch ID support, and an improved iSight camera. The impetus to upgrade is clear.

The same, however, can't be said for the iPad Mini 3. Save for Touch ID, the iPad Mini 3 is the exact same device as the iPad Mini 2; they share the same screen technologies, the same A7 processor, and the same iSight camera. Nothing has been made thinner, nothing even a gram lighter.

So what gives? Why is Apple seemingly giving the iPad Mini 3 the cold shoulder?

There are few points to consider which, together, may help shed some light on what can only assume is Apple's purposeful ho-hum iPad Mini upgrade this year.

Protecting already thin margins

It's well known that Apple enjoys higher margins on the iPad Air than it does on the iPad Mini. As a result, perhaps Apple was hesitant to bestow the iPad Mini 3 with more recent and more expensive components so as to not cut into already thin margins. Though the inclusion of Touch ID isn't all that expensive (the sensor is rumored to cost around $7), new components start to add up quickly once you account for a next-gen processor, a more advanced Wi-Fi module, and a better camera.

Further, if we assume that the full-sized iPad remains Apple's more popular model (Apple unfortunately doesn't break down its iPad sales by device), it stands to reason that Apple, with respect to the iPad Mini, can't make up for lower margins with increased volume.

Pushing consumers towards the iPad Air

Aside from obvious size differences, remember that the iPad Air and the iPad Mini 2 housed the exact same internals. Both came with Apple's 64-bit A7 processor, the same screen technologies, and the exact same FaceTime and iSight cameras. While this was great for consumers, the number of people opting for the iPad Mini 2 over the iPad Air may have been higher than Apple was anticipating.

Note that the average selling price across Apple's iPad line during the company's July quarter was $443.58. In the preceding quarter (from January to April), the average selling price for the iPad was $465. And just yesterday, Apple's earnings report revealed that the average selling price for the iPad during the September quarter was $431.

The following infographic from The Verge highlights how the average selling price for the iPad has been trending downwards for a while, and really started to sink once the iPad Mini was released in November of 2012.

That being the case, perhaps the modest iPad Mini upgrade was designed to make the iPad Air 2 that much more appealing. For just $100 more than the base model iPad Mini 3, consumers can get a bigger screen and distinctly improved internals.

The iPad Mini is less important thanks to the iPhone 6

With the recent release of the gigantic iPhone 6 and the gargantuan iPhone 6 Plus, perhaps Apple is betting that its two new iPhone models will diminish demand for the iPad Mini. Perhaps Apple reasoned that it shouldn't invest more money than necessary into an already lower-margined product on the precipice of experiencing a decline in sales volume. Remember, Apple has no problem cannibalizing its own products. In fact, you might even say they enjoy it.

Recall Tim Cook's comments on cannibalization during an earnings conference call last year.

"I see cannibalization as a huge opportunity for us," Cook said. "Our core philosophy is to never fear cannibalization. If we don't do it, someone else will."

Further, remember that the impetus behind releasing the iPad Mini in the first place was to stop smaller and lower-priced Android tablets from eating into iPad sales. With the new iPhone 6 models now out and in high demand, perhaps the strategic importance of the iPad Mini has been lessened. To that end, the iPad Mini, arguably, doesn't need to be positioned as the most advanced smaller-sized tablet on the market. Rather, it can continue to serve a role by merely existing as a cheaper alternative to the iPad without needing any of the more recent technological bells and whistles.

Speaking to the potential for cannibalization, former Apple executive Jean-Louis Gassee recently wrote:

Talk of Apple's game plan brings us to the iPhone 6 Plus... Does the new, larger iPhone say something about the future of the iPad mini?

I once thought the mini was the "real" iPad because I could carry it everywhere in a jacket pocket. But about two weeks ago I bought an iPhone 6 Plus, and I haven't touched my mini since. (As punishment for my sin, I found 52 apps awaiting an update when I finally turned on the mini this morning...) Now I have an "iPad micro" in my (front) jeans pocket...and it makes phone calls.

It remains to be seen how pervasive iPhone6/iPad Mini cannibalization is, but if Gassee's thoughts on the matter are shared by many, look for a big uptick in the ASP for iPads when Apple releases its earnings results for the holiday quarter this coming January.

Slower upgrade cycles

Another point to consider: perhaps the iPad Mini 3 was somewhat neglected because the iPad, for a variety of reasons, has a slower refresh cycle than the iPhone. While consumers often have no problem upgrading to a newer phone every two years, and in many cases every year, the same can't be said for tablets.

It therefore stands to reason that even if Apple gave the iPad Mini 3 the same upgrade treatment as the iPad Air 2, no one with an iPad Mini 2 would be compelled to upgrade. At the same time, Apple didn't have to add much of anything to the iPad Mini 3 to make it an extremely attractive upgrade for anyone currently using the original and Retina-less iPad Mini.

This is typical Apple

Apple traditionally bestows its latest and most advanced technology on the products it would prefer to sell more of, which is to say its lineup of more expensive flagship devices. It's why the iPhone 5s came with Apple's amped up A7 while the iPhone 5c came with a year-old A6 processor.

So while last year's iPad Air had much in common with the iPad Mini 2, that level of parity between the the company's two iPad lines can be viewed as more of an exception than the rule. Especially when one considers that every retina iPad model has featured a beefed up variant of Apple's A"x" processors; the iPad 3 had the A5x chip while the iPad 4 had the A6x chip. In other words, Apple showering the iPad Air with advanced components and keeping the iPad Mini on the sidelines arguably returns things to the status-quo that Apple typically prefers.

Looking ahead

Apple's most recent earnings report revealed yet another year over year drop in iPad sales. It'll be interesting to see if the iPad Air 2 will help reverse that trend or if sales will continue to drop going forward.

For any interested iPad Mini owners, I suppose the silver lining is that last year's iPad Mini 2 is available for $100 less than the iPad Mini 3 and the only thing you'll be missing out on is Touch ID.

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