Where Are Apple Shares Headed After iPad Mini Launch?

Apple (NASDAQ:AAPL) shares were driven lower on Tuesday after an event at which Tim Cook introduced updates to a few major products, and the highly-anticipated iPad Mini. The stock has been moving up and down over the past few weeks, though, which means it may be too soon to judge the impact of the potentially game-changing new device.

Apple was up above $700 a couple months back as it geared up for the release of the iPhone 5. Analysts were enthusiastic in their praise, driving shares higher than expected and breaking records. However, since then shares have declined after too many flaws were reported in Apple’s new Maps application for iOS 6, which was pitched to compete with Google (NASDAQ:GOOG) Maps.

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The iPad Mini was expected to give Apple shares a bounce, but it seems investors may be more skeptical after the maps debacle and recent sell-off. Apple shares closed at $634 on Monday, the last full day of trading before the event, down roughly 10 percent from a record high reached in September. Apple shares closed 3.24 percent lower Tuesday.

With the iPad Mini, Apple reaches out to consumers who may have been turned off by the original iPad’s pricing or size. The device has the potential to be lucrative, but it faces steep competition from competitors that have been operating in the space for years, as well as some new entrants.

Amazon’s (NASDAQ:AMZN) Kindle Fire lineup has perhaps met with the most success in the low-end tablet market, and the company just introduced two new tablets: the Kindle Fire HD and the Kindle Fire HD 8.9″. The 7-inch Kindle Fire HD starts at $199 for a 16GB device, while the 7.87-inch iPad Mini starts at $329, more even than the 8.9-inch device, which starts at $299. Consumers interested in a smaller tablet may welcome the iPad Mini, but those looking for a more affordable option may not be won over by the new device.

Of course, Apple brings to the table its iOS mobile operating system, which has been a major selling point for Apple devices in the past. But just as the iPad Mini is set to hit the market, Microsoft (NASDAQ:MSFT) is preparing to launch its own Surface tablet running on Windows 8, a new operating system that has so far been met with much praise, and could help the company gain some footing in the mobile space, as well as in personal computers.

With a much higher price point than the iPad Mini — one that clearly puts the Surface up more squarely against the iPad — Microsoft’s device might not have much of an impact on Mini sales. However, they could potentially take a bite out of iPad revenue, which means Apple has a lot more riding on the Mini.

Then, of course, there’s concern that Apple’s own product will cannibalize sales of more profitable devices. Customers pay a premium for Apple products not only because of their performance, but because they’ve become a status symbol. Those customers desirous of an Apple tablet, who may have been willing to spend $500-plus to get it, will now have a somewhat more affordable option than in the past. Apple customers may also choose the Mini because of its size.

Like the original iPad, the Mini comes with built-in Wi-Fi, while customers can choose whether to upgrade to a device that also works on a mobile network. Currently, Sprint (NYSE:S), Verizon (NYSE:VZ), and AT&T (NYSE:T) provide data services for iPad users in the U.S. And like the iPad, the Mini is available with three different storage options: 16GB, 32GB, and 64GB.

The Mini is somewhat less powerful than the updated iPad, running on an A5 chip rather than the dual-core A6X with quad-core graphics, but for casual users, the difference will hardly be noticeable. Both devices have the same cameras and 1080p video recording, and both have similar battery life. The Mini does not have the iPad’s Retina Display, but other than that one detail, the Mini is, in most respects, just a smaller version of the more expensive iPad. And it costs $170 less than its full-size predecessor.

So why buy the full-size iPad when you can pack all the same features into a smaller device that is decidedly more “mobile”? That’s the question investors and analysts are asking themselves, and until Apple releases earnings for the current quarter, they won’t be able to determine the impact the Mini will have on revenue. Even if initial orders for the device are high and it proves a success, the fact that it competes against an existing Apple product means that revenue could still take a hit.

Perhaps that’s why Apple chose to release a fourth-generation iPad on Tuesday as well — a move that came wholly out of left field, breaking with the company’s schedule of releasing a new iPad once a year, in the spring. Apple only released the third-generation iPad in March. The move may have been intended to prevent the Mini, as well as competitors’ new products, from hogging the spotlight and stealing away sales during the crucial holiday season.

It has in the past been suggested Apple would be wise to update the iPad twice yearly, as sales tend to slip after a device has been on the market for six months. With pre-sales starting in October and the device shipping in early November, Apple also positions the fourth-generation iPad, and any future iPad updates following this schedule, to maximize holiday-quarter revenue.

It seems CEO Tim Cook has thought this one through, but even if an iPad Mini was inevitable, it’s still a gamble, as evidenced by investors’ reactions on Tuesday. Only its success, as well as the continued success of the original iPad and consistently strong revenue, will be able to push Apple shares back up above $700. If Apple again proves its virility, shares may even reach the $1000 Gene Munster predicted for 2014 back in April, when shares were trading at about the same price they were Wednesday.

But until investors’ fears are allayed, Apple shares will likely remain volatile, which means they could see further declines that extend beyond the wild fluctuations we’ve seen so far in October. For a company that’s on top, there’s a lot of room to fall.

Apple shares are up slightly Wednesday afternoon, but haven’t yet recovered from losses the day before.

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