(By Mani) Recent supply-chain commentary on Apple, Inc.
) points towards a material ramp-up within the company's ecosystem ahead of the iPhone 5 refresh this fall. Simultaneously, supply-chain checks suggest that the Sept. 12 event will have more than just an iPhone 5 launch.
iPhone 5 should be equipped with the latest 4G/LTE technology and will likely come with a redesign as well, and the refreshed iPhone 5 would be available during the late summer/early fall time frame.
While consumers await the release of the much anticipated iPhone 5 in the fall, more attention is being paid towards a possible new "iPad Mini".
"While its unclear if the additional product is an iPad refresh or a "mini iPad", we do believe AAPL may look to leverage the price elasticity of the nascent tablet market by having a ~$300 device," RBC Capital Markets analyst Amit Daryanani wrote in a note to clients.
The release of an "iPad Mini"could enable Apple to accelerate tablet adoption especially in the education vertical. Recently, Apple said that the education sector is seeing significant traction, particularly with the new $399 price point on the iPad 2. Highlighting strength in education, the company noted that twice as many iPads were sold in the quarter relative to Macs in the sector.
Daryanani estimates that 40 million units of "iPad Mini" could be sold over the first 12 months yielding $10 billion in revenue and $1.15 in EPS.
If Apple would release an 7-8" "iPad mini", the debate would shift to price points.
"In our view, a likely price point would fall between a discounted iPad 2 price, 10% discount for education sector at $360, to the iTouch price point $200," the analyst noted.
Apple could launch "iPad Mini" for an 8GB WiFi version as the lower price points would allow for increased penetration rates in the budget constrained education sector. In addition, a smaller form factor iPad could be used to attack the portable gaming and reading market and take share from Amazon Kindle Fire.
"We believe the long-term margin profile for an "iPad Mini" would be roughly in-line with our current estimates for the "new iPad" gross margins at 25-30% (approximately one half of the gross margin profile generated by the iPhone)," Daryanani said.
However, the launch of iPad Mini could have some negative impacts, including lower revenue levels due to cannibalization and lower average selling prices of new applications, downloads and content. In addition, a 7" form factor may limit capabilities for tapping, flipping and pinching.
For the third quarter, Apple sold 26 million iPhones, a 28 percent increase from last year. iPad sales surged 84 percent to 17.0 million units.
iPad can continue penetrating the government, consumer and enterprise sectors by adding some useful features and functionalities such as Microsoft Office integration, improved textbooks to continue penetrating the education sector, seamless mobile payment processing linked to commercial or consumer credit lines, larger flash memory storage and improved battery life.
Shares of Apple have gained 55 percent in the last one year – an achievement considering the weak economic backdrop. Apple's profit is estimated to grow 69.4 percent this year and 22 percent, on average, in the next five years. Relatively, profits of the broader S&P 500 index companies are expected to grow 9 percent this year and 11 percent in the next five years.
"Fundamentally, we believe investors should remain long AAPL ahead of multiple catalysts including iPhone 5 refresh in fall, potential new iPad products in the fall, and iTV launch in 2013," the analyst added.