Apple, Inc. Gets Aggressive With the New iPad

By Evan Niu, CFA Markets Fool.com

Apple (NASDAQ: AAPL) has made a few quiet product updates this morning. No event. Not much fanfare. Just a few press releases with some minor changes for the iPhone and iPad.

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For starters, the company is launching a new (Product) RED Special Edition of the iPhone 7 and 7 Plus. Like all products that participate, a portion of the proceeds go toward combatting AIDS, and Apple has been partnered with (RED) for over a decade. The company says it is the largest corporate donor to the (RED) Global Fund, contributing over $130 million over the years, which is a fairly significant chunk of the $465 million that (RED) has raised since 2006. The red version does look pretty striking.

Image source: Apple.

Introducing the new, old iPad

What's happening to the iPad line is more meaningful. Apple is ditching the "Air" branding and the numbers, simplifying the new tablet as just "iPad." There don't appear to be any perceptible changes to the design other than it being a tiny bit thicker (1.4 mm) than the outgoing iPad Air 2; the dimensions are the same as the original iPad Air from 2013. In terms of specifications, the new iPad is getting a newer A9 chip, and it has a slightly larger battery than the iPad Air 2 (which may explain the slight increase in thickness). Camera specs were unchanged.

New 9.7-inch iPad. Image source: Apple.

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The real story is the price, which is being dropped to an aggressive $329, which gets a base 32 GB of storage. Adding an extra $100 quadruples the storage to 128 GB, while cellular connectivity will set you back an additional $130 -- familiar pricing structures for Apple. The company lowered the price of the iPad Air 2 to $399 (16 GB) a year ago, so we're talking about a $70 reduction combined with more base storage. If this sounds familiar, that's probably because this is almost the exact same strategy that Apple implemented with last year's iPhone SE: Put the most current specs (most notably the processor) into a slightly older form factor while reducing the price substantially.

Brought to you by the iPhone SE playbook

Almost exactly a year ago, I noted that the iPhone SE represented a major strategic shift for Apple while acknowledging some potential implications for the iPad. While Apple didn't apply the strategy to the iPad Minis like I expected, it is still clearly borrowing pages from the iPhone SE playbook. Apple says the 9.7-inch display is the most popular, so using this strategy here is a slightly different approach; consumer preferences have been shifting toward larger displays (i.e., away from the iPhone SE's 4-inch display) for years.

Speaking of the Mini, this price change puts the 7.9-inch tablet in a precarious position. The iPad Mini 4 still starts at $399, but Apple has just increased the included storage to 128 GB as the only storage option. It still comes with an older A8 chip and a smaller display, yet costs more than the new 9.7-inch iPad. The iPad Mini 2 has now been discontinued.

The upside

The aggressive pricing will hopefully spur additional unit sales, at least on the consumer side where the iPad is positioned. There may be some modest dilution of iPad average selling prices, but only if the new 9.7-inch iPad proves popular. Apple now appears intent on focusing its developmental resources on the Pro lineup that is targeting the enterprise (support for Apple Pencil and Smart Keyboard are still reserved for Pro models).

Anything that has the potential to boost iPad sales is the right call in my book.

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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.