Apple finally entered the phablet category with the iPhone 6 Plus this past fall, and analysts are now talking about cannibalization of the iPad. Surprisingly, there hasn’t been much talk about this issue since the phablet hit the market, but there’s little doubt that the iPhone 6 Plus will have a negative impact on iPad Mini sales.
But how much of an impact will there be and does it really matter? Just in time for the New Year though, Trefis analysts provided an analysis of just how much cannibalization we can expect from the iPhone 6 Plus. They don’t think the issue is a big deal.
Walter Schloss isn’t a name many investors will have heard today. Schloss was one of the great value investors who trained under Benjamin Graham and specialized in finding cheap stocks. His track record was outstanding. In Warren Buffett’s 1984 essay, the Super Investors of Graham-and-Doddsville, he noted that between 1956 and 1984, Schloss’s firm returned Read More
iPhone 6 Plus – Apple already seeing falling tablet sales
In a report dated Jan. 2, 2015, the Trefis team noted that Apple’s iPad numbers have already been slipping. iPad sales fell year over year for the first three quarters of last year. As of the third quarter, Apple’s share of the global tablet market slumped to 23%, compared to approximately 29% the year before.
Growth in the tablet market has a whole has been slowing down anyway, with analysts expecting a 12.1% growth rate last year, compared to the approximately 51.8% growth in 2013. Developed markets are showing higher penetration rates, and tablets have longer upgrade cycles, thus causing the decelerating growth rate.
Apple’s iPhone 6 Plus is a one-size-fits-all device… for some
The Trefis team believes the 7.9-inch iPad Mini makes up more than half of Apple’s total iPad shipments. They say it’s likely that the tablet will still be popular with those who want an “affordable” tablet that’s easy to use and offers a “comfortable” viewing experience. They note that the iPad Mini has 130% more viewing area than the iPhone 6 Plus.
However, they also say that some consumers take the view of one device fits all, which the iPhone 6 Plus will fulfill for them. The Trefis analysts think those who purchase an iPhone 6 Plus will be less likely to buy an iPad Mini because the 6 Plus “provides a good balance in terms of functionality, screen size and portability.”
The analysts also point out that the $299 beginning price (on contract) of the iPhone 6 Plus is about on par with the price of the iPad Mini 2.
How much of an impact will the iPhone 6 Plus have?
Apple never breaks down iPhone sales according to model, and it’s too early to really know how the iPhone 6 and 6 Plus are doing. However, the Trefis team said the trends of falling tablet sales and growing phablet sales are clear.
Mobile analytics firm Flurry estimated that approximately 51% of device activations in the week leading up to Christmas were Apple devices. The firm also reported that about 13% of the new devices that were activated during that time frame were phablet’s compared to 2013’s 4%. About 22% of new device activations were tablets, compared to the previous year’s 29%. Trefis analysts think these numbers suggest that some customers are favoring the iPhone 6 Plus this year rather than tablets because 2013 did not bring a phablet option for the iPhone.
iPhone 6 Plus to improve Apple’s gross margins
So does it really matter that many iPhone 6 Plus sales are coming at the expense of iPad Mini sales? The Trefis team doesn’t think so because the iPhone 6 Plus’ higher selling price should offset the losses in iPad sales.
They believe the most popular iPhone 6 Plus model will be the 64-gigabyte version, which sells for $849 without a contract. Estimates from IHS suggest that Apple’s cost of materials for the phablet is less than $240, which means a gross profit of more than $600 per phone.
However, they point out that margins on the iPad are far less. The iPad Mini 2 sells for $299, and Trefis analysts estimate the cost of materials to be around $200 because the older iPad Mini with lower specs had a cost of materials of around $190 when Apple launched it. This brings a gross profit of just about $100 per unit.
Apple’s product strategy to improve too
The analysts also believe the iPhone 6 Plus will boost Apple’s “product strategy,” perhaps driving some consumers to buy the company’s bigger iPad Air or iPad Air 2 rather than the cheaper iPad Mini. Of course that would mean an increase in average selling prices and margins for Apple’s full iPad line.
Shares of Apple slipped by less than 1% during premarket trading this morning.