Analyst: Not the First Time Critics Questioned Apple's Pricing

Critics, pundits, and analysts have come out in force to criticize Apple's iPad mini pricing—including our own John Martellaro—but Sterne Agee analyst Shaw Wu pointed out to his clients that we've heard it all before.

Apple introduced the iPad mini during a media event on Tuesday starting at US$329, higher than entry-level devices from Amazon and Google, but Mr. Wu argued that Apple has matched pricing to demand again and again during its meteoric rise to become the world's most valuable company.

"This isn't the first time many have questioned AAPL's premium pricing strategy," Mr Wu wrote in a research note obtained by The Mac Observer. "We have seen it with the iPhone, iPod, Macs, and even iPad. We would argue that AAPL has a strong track record in pricing to optimize volume and profits unlike most competitors who need to price low to have a fighting chance."

Dear Apple...

To put that in another way, Apple is likely to face supply constraints for the iPad mini, and there's little need to sell the device for less if the company can move all of the product it makes at the higher price it chose. More importantly, Apple has shown a propensity towards being able to optimize price and demand, and there's no reason to think it hasn't done so again.

"We continue to believe iPad mini is the competition's worst nightmare and likely to drive incremental volume," Mr Wu added, echoing comments he made on October 9th.

He argued that $329 is still more attractive than $399 for the iPad 2 or $499 for the iPad with Retina Display, an that some customers who might consider a Nexus 7 or Kindle Fire HD will instead consider the iPad mini.

"Keep in mind that competitors have a tough enough time competing against higher priced iPads and we think iPad mini that is $70 less will make it even more difficult," he wrote.

Shaw Wu maintained his $840 price target for AAPL and his "Buy" rating.

Barclays analyst Ben Reitzes had a similar take, though he expressed it in slightly more critical terms. In a research note to his clients, Mr. Reitzes wrote that, "We were hoping the mini could be priced at least a little lower given its competition is situated as low as $99, with many starting in the $199-$249 range."

He added, "That being said, Apple seems convinced that consumers want the iPad and its ecosystem, which has worked so far at the high-end."

Mr. Reitzes believes that Apple can sell 5-10 million iPad minis during the December quarter, with 25-50 percent of those units (1.25-5 million units) cannibalizing sales of iPad 2 and iPad with Retina Display.

Ben Reitzes lowered his price target for AAPL from $810 to $800, while maintaining his "Overweight" rating for the stock, the equivalent of a "Buy" for Barclays.

The reduction of his price target was based on a belief that Apple will guide lower-than-consensus for the December quarter. He also noted that Apple CEO Tim Cook's claim that his company sold its 100 millionth iPad two weeks ago means that September iPad sales are likely below expectations.

Apple reports September earnings on Thursday, October 25th, after the markets close.

AAPL ended Wednesday higher, at $616.83, a gain of $3.475 (+0.57 percent) on moderate volume of 19.9 million shares trading hands. This represented a slight bounce off of Tuesday's 3.3 percent loss of $20.67 per share.

Image made with help from Shutterstock.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.