Analyst skeptical of $249 price for iPad Mini

Computerworld - Claims by a German website that Apple will price the iPad Mini starting at €249 were met today with skepticism by an analyst who two months ago projected the opening price would be $299 in the U.S.

In a screenshot published by the German website MobileGeeks, prices for the iPad Mini begin at €249, and top out at €649. The screenshot purportedly is from the inventory system of Media Markt, Europe's largest electronics retail chain.

Apple typically keeps dollar and euro pricing closely in sync -- the least-expensive iPad, for example, is priced at $499 in the U.S., €479 in Germany and €489 in France -- which by the Media Markt screen would put the starting U.S. price around $249.

[Apple's prices are inclusive of taxes in some countries, particularly where a VAT, or "value-added tax," is applied. In Germany, for example, the VAT is 19%, and already included in the €479 starting price of an iPad.]

But one analyst was a little leery of a price of $249.

Sameer Singh, the founder of Tech-Thoughts, and in his day job, an analyst with Finvista Advisors, an India-based mergers and acquisitions consulting group, in August predicted a $299 starting price for the iPad Mini based on a preliminary -- and sight-unseen -- estimate of the tablet's BOM, or "bill of materials."

He stuck by the $299 price point today -- based on a materials and manufacturing total of $189 for an 8GB model -- but acknowledged he was weakening.

"I still think a starting price of $299 is more likely, but I'm less certain than I was before," Singh said in an email reply to questions Monday, after seeing the MobileGeeks blog post. "It really depends on how Apple views the competitive dynamics in the industry. If Apple sees the [Google] Nexus 7 and the [Amazon] Kindle Fire as major threats, they could get more aggressive with a $249 price."

Singh was also dubious because of the 16 different configurations cited in the screen shot, which included black and white Wi-Fi models in 8GB, 16GB, 32GB and 64GB storage sizes; and the same four storage options for an iPad able to connect to a cellular data network.

"The first thing that jumped out was the sheer number of SKUs [stock-keeping units], especially considering the fact that the order size was just 8-10 million," said Singh. "Apple usually uses larger storage sizes to balance out margins on lower storage models, but I'm not sure that would be much help in this case. With the iPad Mini, Apple's targeting two sets of consumers: First time, price-sensitive buyers and tablet owners looking for a second, more portable device. I don't think either segment would be willing to pay a steep price for an iPad Mini. And Apple may be better off steering high-income customers toward higher-end models [like the larger iPad]."

Singh's betting that Apple will show a much shorter configuration list than the one portrayed in the screenshot.

At a price of $249, Apple's margin would be 24% of Singh's estimated BOM, a number lower than the Cupertino, Calif. company's usual target. But at $299, the margin increases to 37%, well within Apple's comfort range.

"The stock market may not be too happy with that [24%] margin," Singh observed.

His August BOM had estimated costs of an 8GB iPad Mini, and that, at least, the screenshot got right, Singh said.

"I still think [8GB is] likely," Singh said. "Apple typically does not compete on price or specifications, and the 8GB model would give them better margins. Plus, the base 8GB model helps reinforce the message that this is a lower end, albeit more portable, device as compared to the larger iPads."

He defended that opinion even though Amazon recently introduced its 7-in. Kindle Fire HD tablet with a base storage configuration of 16GB, and at a $199 price. "Amazon chose 16GB because it already had the lower-priced model at 8GB and they also wanted to 'one up' the Nexus 7 at the same price," argued Singh.

Although earlier speculation had pegged this week for the unveiling of the iPad Mini, those rumors have shifted and now center on Oct. 23, just two days before Microsoft's Windows 8 and Surface RT launch event, and only three days before the new operating system and hardware running it go on sale.

No matter what its price, an iPad Mini will be tricky for Apple, Singh said, echoing other analysts. "Apple's goal would be to draw as many first time buyers as possible while minimizing cannibalization," said Singh. "This is one reason why I expect Apple to focus on mobility benefits and on books during the launch."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@ix.netcom.com.

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