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Apple's iPad mini Off to a Strong Start


By how many units will the iPad mini cannibalize larger iPad sales?

Gene Munster of Piper Jaffray released a report earlier in the month stating that the iPad mini would have a cannibalization rate of 20% relative to the larger iPads. Munster projects Apple will sell 25 million iPads in total for the December quarter, up from 21 million iPads despite the cannibalization rate. For the 2013 fiscal year, Munster expects total iPad sales to increase from 86.5 million to 95 million.

Canaccord Genuity lowered its sales estimate for the larger iPad in the December quarter of this year from 20.8 million units to 16.4 million units because of the likely cannibalization to be caused by the iPad mini. On the day Apple revealed the iPad mini, Canaccord lowered its sales estimate for the larger iPad for Apple's 2013 fiscal year from 77.0 million units to 58.7 million units. However, like Piper Jaffray, Canaccord increased its total iPad sales projection, including the iPad mini. It increased the 2013 fiscal year estimate 29% to 99 million units.

Canaccord expects Apple to sell 9.25 million iPad minis in the December quarter of this year, and 40 million units in 2013. Piper Jaffray predicts Apple will sell at least 5 million iPad minis in the December quarter.

Some investors worry, though, that more customers than anticipated will purchase the iPad mini instead of the larger iPads, resulting in slower sales and consistently lower gross margins. They seem less concerned about competition from tablets from Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT).

Apple CFO Peter Oppenheimer said yesterday during Apple's conference call for its September quarter that the iPad mini's profit margin is "significantly below average" compared to its other devices. Profit margins from tablet sales could become further depressed if customers decide the iPad mini is a better deal at the lower price than larger iPads. To the casual tablet owner, the differences between the two iPad models may not justify the price tag of the larger iPad.

Twitter: @ChrisWitrak
No positions in stocks mentioned.
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