iPhone 6 Plus Will Hurt iPad Sales, But That’s Not Necessarily Bad For Apple

by Trefis Team
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Apple’s (NASDAQ:AAPL) iPad had a difficult 2014. Sales of the device declined year-over-year for the first three quarters of 2014 and, as of Q3 2014, Apple’s global tablet market share fell to 23% down from about 29% a year ago. [1] The decline has come on the back of slowing growth in the tablet market (global tablet sales are expected to have grown by 12.1% in 2014, compared to a growth rate of around 51.8% during 2013), higher tablet penetration in developed markets and also due to longer upgrade cycles for tablets. [2] We believe that iPad sales could come under further pressure going into 2015, with the introduction of Apple’s first phablet device, the iPhone 6 Plus, which is likely to cannibalize sales of Apple’s popular iPad Mini models. In this note, we take a look at how the iPhone 6 Plus is likely to impact iPad sales and Apple’s overall product strategy.

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iPhone 6 Plus Will Hurt iPad Mini Sales

We estimate that the iPad Mini, a 7.9 inch tablet, accounts for over half of Apple’s total tablet shipments. While the Mini is still likely to prove popular with customers who seek an affordable, easy to use tablet with a comfortable viewing experience (130% more area than the iPhone 6 Plus), the the one-device-fits-all proposition of the iPhone 6 Plus is likely to hurt sales. We believe that an iPhone 6 Plus customer will be less inclined to purchase an iPad Mini, given that the iPhone 6 Plus provides a good balance in terms of functionality, screen size and portability. Additionally, the upfront $299 price (on contract) for the base version of the 6 Plus is on par with the iPad Mini 2 and just $100 ahead of the iPhone 6, making it a relatively attractive proposition for customers on a carrier contract. While we don’t have data on iPhone 6 Plus sales, the trend towards shrinking tablet sales and expanding phablet sales is evident. According to mobile analytics firm Flurry, Apple devices accounted for about 51% of all device activations in the week leading up to Christmas. About 13% of new device activations were phablets, up from just 4% in 2013, while tablets accounted for 22% of activations, down from 29% in 2013. ((Apple and Apps Dominated Christmas 2014, Flurry, December 2014)) This could be indicative of the fact that some customers are scaling back on tablet purchases in favor of the iPhone 6 Plus, since there was no iOS option available for phablets during 2013.

6 Plus Bolsters Apple’s Product Strategy And Margins, Outweighing iPad Losses

However, we believe that the cannibalization is unlikely to have an impact on Apple’s bottom line. We believe the most popular version of the iPhone 6 Plus is likely to be the 64 GB version, which retails at $849 off contract. According to data from IHS, the costs of components and manufacturing for the device come in at below $240, translating into a gross profit of above $600 per unit. [3] Margins on the iPad are much less generous. For instance, the 16 GB iPad Mini 2, one of the more popular iPad models, retails for $299. While the current bill of materials for the device is not available, we estimate that it should be about $200, given that the older and lower-spec original iPad Mini cost an estimated $190 to build at the time of launch. This would translate to a gross profit of around $100 per unit. The thicker margins on the new iPhone 6 Plus models should more than make up for potentially lost sales of the iPad Mini. In addition to the healthy margins, the iPhone 6 Plus is likely to have a positive impact on Apple’s overall product strategy. The 6 Plus could drive some customers to purchase Apple’s larger screen iPads such as the iPad Air and iPad Air 2 instead of the Mini, which could positively impact iPad ASPs and margins. Additionally, the device is helping Apple notch market share gains in the high end of the smartphone market, since the company is now able to attract customers who had been flocking to premium Android phablets due to prior lack of a large-screen handset in Apple’s product portfolio.

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More Trefis Research

  1. Fueled by Back-to-School Promotions and US Growth, the Worldwide Tablet Market Grows 11.5% in the Third Quarter, IDC, October 2014 []
  2. Worldwide Tablet Shipments Miss Targets as First Quarter Experiences Single-Digit Growth, According to IDC, IDC, May 2014 []
  3. iPhone 6 Plus: $100 Costlier for Consumers to Buy—Just $15.50 More Expensive for Apple to Make, IHS, September 2014 []
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  • commented 5 years ago
  • tags: GOOG AAPL SMSN
  • oh and bigger iPad are on the way that will replace the desktop. Then there are games that could operate for the new apple tv that will also be the ihome device that is talked about.
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  • commented 5 years ago
  • tags: GOOG AAPL SMSN
  • agree that the plus will replace the mini. the watch will be a phenomenal success; a watch, a security monitor, a health monitor, a remote for all electronics what more can one ask for. And other products yet to launch will propel the stock higher to $150 plus.