Analyst Take on an iPad Mini (AAPL, RIMM, DELL, AMZN)

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The talk has been out there before and it will likely continue ahead… Rumors of a mini iPad. Apple Inc. (NASDAQ: AAPL) was strongly opposed to this under Steve Jobs but now Apple is under Tim Cook and the market thinks that there is a better chance of a mini-Pad coming to market.  Companies such as Research in Motion Ltd. (NASDAQ: RIMM), Dell Inc. (NASDAQ: DELL), Samsung, Toshiba, and even Amazon.com, Inc. (NASDAQ: AMZN) for Kindle would have yet one more aspect of their “iThreat” to worry about.

Shaw Wu of Stern Agee discussed this notion in detail today and has noted, “Recent press reports out of the Asia-Pacific have pointed to development of an iPad mini, or smaller form factor iPad. Many investors have asked our take. From our supply chain work, we have come across evidence of such a device since 2009 and we believe it makes strategic sense for AAPL to expand its iPad family. AAPL remains a top pick and we would take advantage of recent share weakness.”  Below is a summary of the notes from the research call:

Checks Indicate Evidence of Multiple Form Factors. Recently, there has been renewed speculation of an iPad mini, or smaller form factor iPad with a screen less than the current 9.7-inch. Frankly, we are not surprised with this as we have picked up evidence since 2009 of AAPL working with smaller, as well as larger screens ranging from 4-inches to 12-inches that could be used in a future iPad, iPod touch, and/or iPhone or even MacBook. We do not sense that the release of an iPad mini is imminent and quite frankly, exact timing is difficult to predict. However, we do believe it makes both fundamental and strategic sense for AAPL to address at some point.

Smaller Screen But Same Resolution. Reports also indicate that despite a smaller 7 or 8-inch screen, the resolution will be the same as the iPad 1 and iPad 2 at 1024×768. This makes it easier for developers to not have to deal with an additional resolution size and allows iPad 1/2 apps to run natively. Conceptually, we believe a smaller iPad mini becomes the new entry-level iPad (as opposed to the current iPad 2) at lower price points, expanding iPad’s TAM (total addressable market) and helping round out the product family.

iPad mini Would Be Competition’s Worst Nightmare. From a competitive standpoint, we believe an iPad mini with a lower price point would be the competition’s worst nightmare. Most of them already have a tough enough time competing against the iPad 2, as well as the new iPad with their $399 and $499 starting price points. So far, only AMZN has had modest success with its Kindle Fire at $199. We believe a lower priced iPad mini would make it even more difficult for the competition to gain traction.

The team maintained a BUY rating as a stock which will outperform a tough macroeconomic environment.  The firm has a $750 price target based upon a 12-times earnings multiple for 2013 plus Apple’s net cash.  Apple shares are up 4.5% at $606 in late afternooon trading in a strong market.

JON C. OGG

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