Just as the iPad Mini has helped Apple (NASDAQ:
massive sales in the tablet space
, the Mac maker is expected to release a smaller and cheaper
iPhone that will attract a new legion of customers. Morgan
Stanley analysts Katy L. Huberty, Jerry Liu and Scott Schmitz
estimate that Apple will start by expanding "carrier
partnerships, retail distribution, and marketing will drive
"We also see several signs that a lower priced iPhone makes
sense," the analysts wrote in a report Friday. "1) iPad Mini is
expanding Apple's customer base with 50% of purchases in
China/Brazil representing new customers to the ecosystem.
"2) Chinese consumers show a desire to purchase the latest
version of iPhone (instead of discounted older generations).
"3) iPhone 4 demand surprised to the upside in the December
quarter. Even at a low 40% gross margin and 1/3 cannibalization
rate, we see an 'iPhone Mini' as incremental to revenue and gross
While the iPad Mini is expected to slowly reduce the need for
a full-size iPad, the iPhone Mini should not have the same
detrimental effect. Some customers will inevitably buy the
cheapest iPhone available, but most of them are likely to be new
customers that want a less expensive device.
Thus, instead of acting as a replacement for the full-size
iPhone, the iPhone Mini will simply provide new customers with an
Even so, Apple's goal may not be to attract cost-conscious
consumers. The company may only wish to gain sales from those who
believe that smaller is better.
This strategy worked well with the iPad Mini, which is one of
the least cost-conscious tablets on the market. At $329 for the
base 16GB, Wi-Fi-only model, the iPad Mini is $129 more expensive
than Google's (NASDAQ:
) Nexus 7 and Amazon's (NASDAQ:
) Kindle Fire HD.
For those who want access to Apple's App Store, the price
difference might be insignificant. But consider this: the Mini is
only $70 cheaper than the iPad 2. Used iPads can be purchased for
a couple hundred or less on eBay (NASDAQ:
With so many smarter options available, it is almost
unfathomable to think that Apple has turned the iPad Mini into a
hit product. This should provide a concrete answer to the age-old
question, "Does size matter?"
Yes, consumers, it does.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Gain access to more investing ideas, tools & education.
Get Started on Marketfy, the first ever curated
& verified Marketplace for everything trading.