Is Apple’s iPad Strategy Backfiring?

Apple (NASDAQ:AAPL) may have created its own biggest tablet rival, with reports that strong sales of the iPad mini have been accompanied by an identifiably slow rate of shipments for the fourth-generation iPad.

How is the iPad mini Cannibalizing Sales?

Citi analyst Glen Yeung, who conducted a poll of 50 Apple stores this week, found limited stock of the iPad mini, but wide availability of the iPad 4. On the surveyed stores, 80 percent said a model of the mini was available, but 96 percent of them said overall availability was limited based on quantity, storage options, and color. The 32GB iPad mini saw the highest availability. By comparison, 100 percent of the stores said the fourth-generation iPad was available, with only 6 percent indicating that availability was limited.

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“While not explicitly asked, it is clear in our survey work that [the] iPad 4 is not selling well, cannibalized by mini sales,” Yeung wrote in a note to investors, according to CNET. Approximately 10 million iPad mini units were manufactured this quarter, compared with 10 million to 15 million for all other iPad models combined, the analyst estimated.

What Does it Mean for Apple’s Stock?

This piece of news is a mixed bag for Apple and its shareholders. While brisk sales of the iPad mini are encouraging, the fact that the smaller tablet undercuts sales of its bigger, more expensive brother is not good news. According to an analysis by UBM TechInsights, the iPad mini brings in a gross margin of about 35 percent, while the iPad 4 commands a gross margin of 43 percent.

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