09/16/2014 07:36 am ET Updated Sep 16, 2014

Giant New iPhone Will Crush The iPad Mini

If you're always carrying around a mini-tablet that's connected to the Internet and can also make calls, why would you ever spend $400 for an iPad Mini?

That's what more than a few Apple devotees are going to be asking themselves in the coming years, now that iPhones have gotten bigger and iPads have gotten smaller.

Last week, Apple announced two new larger-screened versions of its best-selling iPhone -- a 4.7-inch version called the iPhone 6, and an even larger 5.5-inch "phablet" (half phone, half tablet) dubbed the iPhone 6 Plus. The iPad Mini, by contrast, has a 7.9-inch display.

The new smartphones come just as iPad sales have fallen off a cliff. Apple sold 13.3 million iPads in the quarter ending in June, down more than 9 percent over the same period last year. And it was even worse the previous quarter, when iPad sales were down 16 percent over the same period in 2013.

There are a number of reasons why iPads aren't selling as well as they used to. People don't upgrade tablets as frequently as they upgrade their smartphones, so they're generally fine with using an older iPad. Plus, there are a number of Android-based tables available that are significantly cheaper than the iPad, which starts at $300 for a nearly two-year-old Mini and $400 for a full-sized model.

And now there's another reason for people not to buy a new iPad: They're going to be carrying around a tablet with them all the time, and upgrading it every two years. The new, thinner iPhones have sharper screens, better cameras and faster chips than the previous generation, plus an additional sensor. And the bigger phone actually borrows from the iPad: When the 6 Plus is used in landscape mode, some apps, like Mail, Stocks and Messages, feature two windows.

"We do everything to take great advantage of these huge displays and make them more capable," Phil Schiller, Apple's vice president of worldwide marketing, told a group of journalists, analysts and celebrities at last week's unveiling event.

But here's the rub: Apple probably doesn't care if the big, new, really expensive -- and really profitable -- iPhone Plus kills the Mini. After all, the iPhone 6 Plus starts at $749, while the newest iPad Mini starts at just $399.

And Apple didn't really care that the $650 iPhone killed the less expensive iPod. (Last week, Apple finally discontinued the 12-year-old iPod Classic.)

As Sammy the Walrus IV, author of the AAPL Orchard blog, tweeted back in July, before the new phones had been announced:

In short, Apple actually makes more money when you buy the iPhone than when you buy an iPad.

Not that a lot of consumers ever see the steep iPhone price. Although wireless companies are pushing customers away from contracts, many people still pay for their phones in monthly installments, which likely makes it easier, psychologically speaking, to drop nearly a thousand dollars for a new phone.

Brian Colello, a senior analyst at Morningstar, wrote in a note to investors after the Apple event that the iPhone 6 Plus could "cannibalize some iPad Mini sales."

"Since iPhone gross margins are likely far superior to [those of the] iPad," he wrote, "this is an advantageous tradeoff for Apple that the firm would likely welcome."



Apple's iPhone 6 and iPhone 6 Plus