Apple Might Double Down on Its iPad Bifurcation Strategy

Apple's (NASDAQ: AAPL) iPad Mini 4 is now over three years old, and in dire need of an upgrade to remain competitive. The Mac maker has just refreshed the high end of its iPad lineup, unveiling new iPad Pros in October, with Apple also exercising pricing power by raising the starting price. The 11-inch iPad Pro now starts at a whopping $800, up from $650 for the previous generation 10.5-inch model.

Here's some good news for Apple's iPad segment.

Two affordable iPads in the pipeline

Apple is reportedly working on a new iPad Mini 5 that could launch next year, as well as a new 10-inch entry-level iPad, according to China Times. Apple released its sixth-generation 9.7-inch iPad at an education event earlier this year, adding support for the first-generation Apple Pencil while offering the tablet at an affordable $329 price point. The new model is expected to modestly increase the display size to 10 inches by slimming down the bezels. The report doesn't mention anything about Apple changing the size of the iPad Mini 5's display.

Instead, Apple is reportedly pursuing cost savings by switching display panel suppliers, which would allow the company to potentially offer the products at aggressive price points. The iPad Mini 5 is expected to launch in the first half of 2019, followed by the 10-inch iPad in the second half of the year.

It's unclear if Apple will implement its TrueDepth camera system and Face ID in the new models, or continue to rely on its older Touch ID technology for biometric authentication. The company could try to keep Face ID exclusive to the iPad Pro lineup in an effort to differentiate the devices, although it did add Face ID to the relatively more affordable iPhone XR released this year.

Hoping to reinvigorate iPad sales

iPad unit volumes -- which Apple will no longer disclose going forward -- have been stagnating for years, and the tech titan is hoping the new entry-level models will drive sales. iPad unit sales fell 6% last quarter to 9.7 million, and iPad revenue fell 15% as consumers continued to opt for cheaper tablets. That shows how important the entry-level iPads are within the product mix: iPad average selling prices (ASPs) continue to hover near record lows ($422 last quarter).

The iPad Mini 4's $400 starting price is a bit steep for a three-year-old device, and the closest thing to a price reduction that the smaller tablet has received has been a boost in storage at the same price. Other than that, it still mostly uses three-year-old internal components like an A8 processor.

Last year, CEO Tim Cook said, "The approach we've had from a product point of view, of bifurcating iPad and iPad Pro, is really resonating with our users." Releasing more affordable iPads at the low end of the lineup, while continuing to push higher with iPad Pros, would be doubling down on this strategy.

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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 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.