Shares
of Apple soared 2 percent Thursday on a report from The Wall Street Journal
which stated that Apple’s Asian suppliers are ramping production for the
September launch of a smaller, less-expensive “iPad Mini.” 

The
price range on the third-generation iPad, which begins at $499 for a 32 GB
Wi-Fi-only model, has arguably kept Apple from playing on the same court as the
$199 Kindle Fire from Amazon and Google’s recently announced Nexus 7, a 7-inch
Android tablet selling for $199. 

Even
at higher price points, Apple still controls a hefty majority of the tablet
market globally and until recently hadn’t appeared to concern itself with the
lower end of the market.  

Ross
Rubin, executive director and principal analyst of connected intelligence at
NPD Group, says that if the recent rumors are true, Apple will have some
backtracking to do to justify its move to a smaller format.  

“Apple
would need to reconcile its previous criticism of that screen size with the
opportunity there now…Both Steve Jobs and Tim Cook rebuked that screen size,
saying that it was unusable,” Rubin notes. 

Still,
he says, a smaller iPad is aimed at the only area where there’s been
significant volume apart from the 10-inch market segment that Apple dominates
today. Of course, nothing being set in stone, Rubin entertains the idea that
Apple might break from rumors of a 7-inch screen.  

“There
are rumors that Apple might do something a bit larger, closer to the 8-inch
display size. Something somewhat similar to the Galaxy Tab 7.7 or the Droid
Xyboard 8.2,” Rubin says, noting that Apple would be able to preserve the
aspect ratio of the 10-inch iPad so as not to cause developers too much pain.

A
smaller iPad would be a bit of a departure from Apple’s standard operating
procedure. Because Apple’s astronomical profits are fueled by high margins, the
company rarely produces a new device to fill a hole in its market strategy.  

Rather,
Apple prefers to reduce the price of older models, thus clearing out inventory,
while the latest generation of any particular device carries the premium price
point.  

Rubin
says there is precedent for this kind of move in the iPod Shuffle, but adds
that the game changed with an iOS-based product.

“You
want to preserve compatibility. You want to preserve the message to developers
of the consistency of the platform. So to optimize that, it would be a
requirement to create a good experience on a smaller screen size,” Rubin
says. 

An
iPad Mini could attract a demographic that Apple typically loses due to its
higher prices. According to NPD Group, iPad owners tend to be older and
wealthier than the customer base of the rest of the market. More than 40
percent of iPad owners have a household income of $100,000 or more, compared to
26 percent of non-iPad owners, NPD found.  

That
said, Rubin contends there’s still a healthy market for a smaller, presumably cheaper
iPad. And this is an area where he says Apple may be changing strategy in a
pretty radical way. A cheaper iPad could mean Apple is finally willing to
subsidize its own product through the selling of content, possibly in the way
Amazon does with its Kindle Fire. 

“They
always have made money on the device. They haven’t sought to bring down price
points through subsidization, or at least their own subsidization in order to
compromise on materials or capabilities,” Rubin says. 

While
the Kindle Fire and Google’s Nexus 7 both appear to have foregone LTE, would
Apple follow suit with a smaller iPad? 

Rubin
says he doubts it. “Apple’s been moving in this direction with the latest
iPad, and there’s clearly a stronger case for [LTE] in a smaller, more portable
product,” he says.

As
with all things Apple, particularly when it comes to the rumor mill, we’ll just
have to wait and see what gets toted onto the keynote stage by Tim Cook and
company this fall. 

Shares
of Apple were trading down slightly less than a percent to $604.50 in early
morning trading.