For some reason, Apple released a 128GB iPad this morning. And a lot of people are scratching their heads over it.
It’s not that a 128GB iPad is an unwelcome thing, of course. More storage for apps, movies and music is always a good thing… except, if it’s just a matter of soldering in a couple of 64GB NAND modules instead of a couple of 32GB NAND modules, why the heck didn’t Apple release a 128GB iPad when they refreshed the iPad in October?
In other words, why now? Why announce it today, on a sleepy Tuesday morning at the tail-end of January? And who is this thing for, anyway?
I’ve got a theory.
Last week, Cupertino announced their quarterly earnings, and they sent Apple’s stock into a nose dive. Why?
Although it was an epic quarter for Apple when it came to revenues, profits were actually proportionally down since a year ago quarter. On average, Apple’s raking in less profit on every product sold than it did a year ago.
Another interesting fact from the quarterly earnings is that for the first time since 2004, the number of Macs sold fell against the year ago quarter. Apple sold 20% less Macs last quarter than they did in the same quarter in 2012. Meanwhile, iPad shipments grew 48%.
When you look at these results, the takeaway is obvious. More and more people are buying iPads to replace their Macs. And there’s a reason why Apple isn’t worried about it, because the margins on iPads are way better for Apple than they are on Macs.
For example, the margins on the MacBook Air reportedly max out at 37%, making it one of the more profitable Macs from Apple’s perspective. Meanwhile, the margins on the fourth-generation iPad max out at 48%.
iPads are more profitable for Apple to sell than Macs are. And what makes them so profitable? The premium they put on the storage.
Check out this chart of the margins Apple makes on every fourth-generation iPad sold.
|BOM & Manufacturing costs||$316||$333||$366|
Data courtesy of iSuppli
See what’s happening here? For every $30 Apple spends doubling storage capacity on the iPad, they can charge an extra hundred dollars at retail.
For every $30 Apple spends on flash storage, they can charge an extra hundred dollars at retail.
Extrapolating from this chart, it’s clear that a 128GB iPad would bump Apple’s iPad margins up above 50%. For roughly $120 worth of NAND chips, Apple will bring in an extra $280 worth of profit on every 128GB iPad sold.
Of course, none of that extra profit means anything if no one buys a 128GB iPad. But they will, and you know who’s going to be buying them in droves? Professionals who are replacing their MacBooks with iPads. Because in the future, the 9.7-inch iPad isn’t going to be purchased primarily as a tablet. The iPad mini has shown that for e-reading and gaming, a 7.85-inch display is more pleasurable to use. But there’s one thing that a 9.7-inch iPad is better at, and it’s working.
You only have to look around you to see that iPads are seriously replacing laptops. Go to any Starbucks, and you will see corporate suits hammering away on reports and students writing on iPads. Keyboard cases for the iPad are a booming market, and another one debuts pretty much every day. Heck, Cult of Mac’s Gadgets & Testing Editor, Charlie Sorrel, files every story from the iPad. The tablet @ work revolution? It’s already here, and the iPad has already won.
You could even call it the iPad Pro.
So why now? Because Apple took a look at their quarterly numbers and saw that now was the time. People aren’t waiting to migrate away from their Macs, and every second that Apple waited was a sliver of potential profit lost.
The 128GB iPad, then, isn’t really a tablet. It’s a MacBook replacement, aimed at professionals. You could even call it the iPad Pro.