"If you don't cannibalize yourself, someone else will," Apple (NASDAQ: AAPL) co-founder Steve Jobs famously said. That philosophy has guided the Mac maker for years, initially referring to how the iPhone would cannibalize iPod sales since the smartphone could also play music. Earlier this week, Apple showed off the new iPad Air 4 at its virtual product event, and the tablet is sure to eat into iPad Pro sales.
Let's go through the potential implications.
iPad Air 4. Image source: Apple.
Is the 11-inch iPad Pro worth $200 more?
The differences between the iPad Air 4 and the 11-inch iPad Pro are negligible. The iPad Air 4's display is 0.1 inch larger, the camera system is less advanced and lacks lidar, there's no ProMotion technology for 120 Hz refresh rates, and there is no TrueDepth camera for Face ID. Are those features worth the $200 difference in price?
Additionally, the iPad Air 4 has Apple's latest and greatest silicon, the A14 Bionic chip that will very likely power the next iPhone, as well as the first Arm-based Mac that's due out this year. The iPad Pro released earlier this year is powered by an A12Z Bionic chip, which is just the same chip from 2018 but with a dormant GPU core activated. The A14 is arguably two years ahead of the higher-end model's processor.
Creative professionals such as photo or video editors might derive greater value out of higher refresh rates or greater storage capacity, but the average consumer probably won't. The larger 12.9-inch iPad Pro is somewhat more differentiated due to its sheer size, making it a more viable laptop replacement.
Growing the installed base
There are a couple reasons why Apple won't care whether it's cannibalizing itself. First, the Cupertino tech giant will likely end up selling more units at the lower $600 price, although Apple has been actively shifting the narrative away from unit volumes in recent years. The company stopped reporting unit volumes in 2018.
"[T]his is a little bit like if you go to the market and you push your cart up to the cashier and she says or he says, 'How many units you have in there?'" CEO Tim Cook said at the time. "It's sort of -- it doesn't matter a lot, how many units that are in there in terms of the overall value of what's in the cart."
The overall value of that "cart" loosely refers to the iPad segment's total revenue, which remains healthy and stable. Second and more importantly, Apple is far more focused on growing its services business, driven in large part by hundreds of millions of paid subscriptions that are billed through its platforms.
It's more important for Apple to grow the iPad installed base -- Cook disclosed this week that 53% of iPad buyers are new to the tablet -- and monetize those users for the long haul with services.
10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 1, 2020
Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
