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October 28, 2013

Expect Shipments of the New Retina iPad Mini to Fall Far Short of Demand in Q4 2013

The other day, when Apple SVP of Worldwide Marketing Phil Schiller ran though his iPad announcements he was quite specific about the iPad Air becoming available on November 1, 2013, and he was just as specifically "vague" about when the new Retina Display iPad mini would ship, noting that it would do so "sometime later in November." What can we take away from that vagueness?

It has already long been speculated that retina iPad minis would be supply constrained and in fact many folks thought that Apple would not even announce the new retina mini because supplies would be severely constrained. We ourselves have anticipated that Apple's suppliers would deliver enough displays that Apple would at least get a solid sales pop in Q4 (the holiday shopping season) regardless of constraints. That is, it would have devices in the supply chain to at least meet enough demand in Q4 2013 to deliver positive non-trivial if not truly outstanding revenue numbers.

Industry research firm IHS issued its own guidance today on this, and strongly suggests that shipments of the Retina Display iPad mini can be expected to fall well short of demand in Q4 2013. The supply will indeed be entirely constrained due to limited production of the tablet’s new retina display. Based on current supply data, IHS anticipates shipments of the new iPad mini with Retina Display will fall below 4 million units and may potentially amount to less than 3 million units in Q4 2013.

Rhoda Alexander, director of tablet research at HIS, says that, “Apple is being rather vague about the exact availability date of the new iPad mini with Retina Display, simply stating that the product would ship later in November. The company has good reason to be coy about the exact release date, given that supply of the new mini is going to be ridiculously tight in the fourth quarter. The heart of the problem is supply constraints on the new Retina panel.”

Taking into consideration that Apple shipped 8.9 million first-generation iPad minis in Q4 2012 (when the original mini first became available), we can anticipate similar if perhaps somewhat less demand. Even so, if Apple will only be able to ship 3 to 4 million new iPad minis it will significantly lag demand. Certainly many potential buyers will simply sigh and resign themselves to waiting for supply to catch up to demand, but Apple may also very well end up losing less loyal buyers who want tablets to competitors.

It will certainly be interesting to see, in these circumstances, if the readily available and now also cheaper original iPad, with its less than stellar display and still hefty $299, can hold a candle to the Google Nexus 7 and the Kindle Fire HDX 7 tablets that deliver far superior screen resolutions that easily rival the Retina mini specifications at a price point of $229.

Should Apple Have Waited to Announce the Retina Mini?

A key issue creating supply problems on the 7.9-inch Retina panel for Apple is that its suppliers are still having problems on the manufacturing side, with low yield rates limiting production. At least according to IHS, which also notes that it believes supply will improve substantially in the first quarter of 2014 - but with Chinese New Year falling at the end of January supply difficulties on the new mini could linger into February or March of 2014.

Alexander adds, “With supply of the new retina mini estimated to come in at one-third or less of Apple’s mini unit shipments in Q4 2012, it’s curious that Apple elected to include the product at the same time as the iPad Air. The iPad Air is an impressive product in its own right. Faster, lighter, and substantially thinner than earlier generations, the iPad Air provides a long-awaited design refresh of the 9.7-inch iPad. Apple could have split the product launches, as they did in 2012, and introduced the mini in the first quarter of 2014. The single fourth-quarter 2013 launch, in contrast to the two-pronged launch strategy of 2012, has created some serious growth challenges for Apple in 2013.”

Alexander's point of course is that coupling the launch now of the iPad Air with a separate Q1 2014 launch of the iPad mini with Retina Display in February or March of 2014, when supply will be more assured, might have made more sense and might have helped reset the stage for Apple for a return to the two-pronged launch strategy that served Apple so well in 2012. The two-pronged approach might also work to allow Apple to own the product news cycle for much of the year, rather than allowing companies like Samsung or Google to instead end up dominating major portions of it.

IHS also points out that while the 2,048 by 1,536 resolution display on the iPad mini with Retina Display certainly costs substantially more than the 1,024 by 768 version in the original mini to build, by itself this high resolution is insufficient to justify a selling price for the new mini that is $170 more the than that of the same devices we mentioned earlier - the Google Nexus 7 tablet and Amazon's Kindle Fire HDX 7.

Much as we wonder if the old iPad mini can compete with these two devices at a $70 premium, can the retina display iPad mini compete at a $170 premium? Well, this is where the "Apple cachet" factor comes into play. The answer is that because of this the new iPad mini can indeed compete and will indeed win out. IHS itself notes that it is the combination of the retina display panel with the new iPad mini’s overall product design - including its 64-bit architecture, durability, ease of operating system upgrades and richness of the Apple ecosystem - that makes the math work.

The price point is likely to be a sticking point for value-centric consumers weighing the lure and cachet of Apple against the ever-expanding array of Android alternatives with far lower pricing. The problem for these low priced competitors however is that there are a great many folks who can afford the Apple prices, which in and of themselves - relative to how much we once had to pay for computing resources - are also relatively inexpensive.

We ourselves believe Apple will do fine. We also strongly suspect that there are a number of new things coming down the road in 2014 that will keep Apple in the spotlight with entirely new products through the year. In truth we don't think there was any reason for Apple to surrender the Q4 holiday buying season here by pushing the mini out to 2014.

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