Mini iPad - the numbers just don't add up

Lots of speculation today that Apple is working on a mini version of the iPad, a device that, if the rumors hold true, will cost anywhere from $249 to $299.

The story seems to have originated on Chinese net portal NetEase. As well as the low price tag, the rumored device has a 7.85-inch screen running at 1024 x 768 -- same as the first- and second-generation iPads -- and there will be an initial 6 million units available at launch.

This mini iPad rumor isn't new, there's just a little more "detail" this time around. I still don't understand the logic of why Apple would make an iPad that's less than two inches smaller than the current offering. A 7-inch tablet would make some sense, since it would complete directly with Amazon's Kindle Fire. But even that doesn't make much sense given that small tablets are not for everyone because the user interface elements are too small and content isn't optimized for a screen that's bigger than a smartphone yet smaller than the iPad.

But screen size issues aside, the numbers don't add up. Take a look at the bill of materials estimate for the iPad 2 and iPad 3 drawn up last month by iSuppli Research:

Before we go on, let me remind you that these figures are estimates, but I believe that they are close enough for our purposes here.

Now take a look at the cost of a 16GB Wi-Fi iPad 2. It's down as a shade over $245. We can take this as a starting price for the mini iPad. A smaller iPad would have a smaller screen, smaller touch screen and, one would assume, a smaller battery. But how much realistically can these smaller items shave off the price? Even shaving $40 off the overall bill of materials (BOM) and manufacturing costs would mean that even at $299 the mini iPad would have the smallest gap between BOM plus manufacturing costs of any iPad.

It just doesn't make sense that Apple would release a mini iPad, a device that could potentially cannibalize sales of the more expensive models, at such a poor margins. A mini iPad might make sense if iPad sales were flagging, but there's nothing to suggest that Apple is having a problem selling full-sized (and high-margin) iPads.

My guess is that the $299 price tag is a stab in the dark. With the 9.7-inch iPad 2 now starting at $399, there's not an awful lot of room price-wise to fit in a mini iPad, so $299 will have to do.

The mini iPad is a solution to a problem that simply doesn't exist.

Image credit: iSuppli Research.

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