Now Where Does the iPad Mini Fit? [UPDATED]

RUMOR: The next iPad mini will start at just $249. CNET has the details:

The iPad Mini is already cheap at $329. But Apple is expected to go even lower, according to a report out Tuesday from Citi Research.

Ciit’s Glen Yeung said in a note to investors that Apple is shifting toward more inexpensive products.

“Supply chain checks by Citi’s Asia-Pac Technology Team suggest a mix shift surprisingly toward Apple’s older iPhone4/4S,” he wrote.

Then added. “And with our expectation of a low-end iPhone slated for September launch, followed by a sub-$250 iPad Mini, we expect this trend to persist.”

Apple doesn’t change prices very often, generally preferring to have fixed prices for a limited set of products, each filling a very specific niche. It’s much like General Motors back in the ’30s, with “a car for every purse and purpose.” The lowest-price Olds started at $5 more than the highest-priced Chevy, and on up the ladder from there.

But before the mini was announced last fall, I ran the product/price evaluation and figured that for its product niche/feature set, that $249 was the “right” introductory price. Obviously, Apple didn’t agree. So before they intro any new products at WWDC next month, let’s take another look at that spreadsheet.

(I should note that this chart is slightly out of date, since Apple unexpectedly intro’d the fourth generation retina iPad with the A6X SOC. But that doesn’t change the product math here.)

I still think $249 makes a lot of sense. The new 16GB iPad mini would slot in at the same price as a 32GB iPod touch. Lose half the storage, but gain a bigger screen. That’s easy math for consumers to do.

We’ll see if Tim Cook thinks the extra marketshare and unit sales are worth cutting $80 off the retail unit price. The decision might come down to one thing: Can Apple’s suppliers churn out enough units to meet the increased demand? If not, then the price won’t be going down any time soon.

UPDATE: One of the reasons — maybe the only legit reason — Apple’s share price has taken such a beating is that their margins have declined sharply. The biggest reason for that was their aggressive product rollout in Q3 last year. Or as Tim Cook put it last winter, paraphrased, 80% of Apples sales were coming from products that didn’t exist six month ago. Shaving $80 off the intro price of the iPad mini wouldn’t do anything to improve Apple’s margins.

However…

Cook has also hinted that this fall, Apple will be moving into new “product categories.” That doesn’t mean a new iPad or a new iPhone or even a new Mac. For Apple, a new category means an entirely new product. Is it a TV, a watch, or something else? Nobody knows. What we do know is, when Apple enters or creates a new market, it does so in a very high-margin way. That might give Cook the leverage he needs to make a price-cutting/market-share play with the iPad mini.

And the way for him to do that is staring us right in the face — because we’ve seen him make this play before.

Apple could easily — and profitably — re–introduce the current iPad mini at a lower price this fall. The “New iPad mini” would slot in at the old $329 price, perhaps with a Retina display, but certainly with upgraded innards.

That move would play to Apple’s history of continuing to sell older iOS devices at reduced prices to lure in new (or price-sensitive) customers, while holding the price-line/profit-margins on new versions.