You're Going the Wrong Way, Apple


All of the chatter surrounding Apple these days is about iOS devices getting cheaper, so it may come as a surprise to find that the tech giant's new toy is a more expensive iPad.

Apple is adding a fourth iPad to its fourth generation of tablets, beefing up its line of iPads with crisp Retina Display graphics. The only difference this time is that the new iPad offers 128 gigabytes of storage.

The extra capacity obviously won't come cheap. When the new device becomes available next week, it will set shoppers back $799 for the basic Wi-Fi model. The three current models fetch $499, $599, and $699 for 16, 32, and 64 gigabytes.

It's an interesting strategy. Apple shifted toward cheaper products late last year. It rolled out a smaller iPad Mini starting at $329 in time for the holiday shopping season. When the iPhone 5 hit the market, Apple lowered the price of the iPhone 4S from $199 to $99 with a two-year carrier contract, and kept the iPhone 4 around for free with a two-year contract.

As Apple tries to reach a broader audience it only makes sense to introduce cheaper products. The strategy bears a cost, though. Apple's average revenue per iPad fell to $467 during the holiday quarter, well off the $568 it was collecting a year earlier. Apple's overall gross margins have shrunk from 44.7% to 38.6% over the past year.

The limbo bar was supposed to keep inching lower. Reports earlier this month indicated that Apple was working on an even cheaper smartphone for overseas markets where wireless carriers aren't aggressively subsidizing the iPhone.

It was also easy to wonder if $329 was as low as Apple would go on the tablet front.'s Kindle Fire and Google's Nexus start at less than $200. Apple is no stranger to Amazon and Google as competitors these days, though it's hard to go too low without cannibalizing the sales of full-sized iPads.

Will the $799 tablet sell briskly? The only market here is for avid tablet users that store enough media on their devices to the point where 64 gigs isn't enough. Take the time to work the math when Apple reports again in three months. Divide the company's iPad revenue by the number of tablets it sells to see if Apple is above or below this past quarter's $467.

Either way, we all know that this isn't the last that we've heard from Apple. Cheaper products are likely coming, at least on the iPhone end.

An Apple a day
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Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends, Apple, and Google. The Motley Fool owns shares of, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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