iPad mini 2 iPad 5

Tech enthusiasts have expected for many months that Apple (NASDAQ: AAPL ) would announce new versions of its full-sized iPad and iPad Mini sometime in October. The rumor mill heated up this week, as AllThingsD -- usually a reliable source -- reported that Apple will unveil the new iPads on Oct. 22.
However, while most observers agree that the fifth-generation iPad will feature Apple's new A7 processor, a thinner bezel, and a design closer to the iPad Mini, there is much less certainty about what to expect in the iPad Mini 2. The AllThingsD story claims that the new iPad Mini will have a Retina display. On the other hand, several other recent reports have stated that Apple doesn't have enough supply of 7.9-inch Retina displays to meet the likely holiday quarter demand.
The good news is that I don't see much danger to Apple even if the new iPad Mini is delayed or in short supply this fall. The iPad Mini already has subpar margins by Apple's standards, and a version with a Retina display will be even costlier to produce. The continued rollout of Apple's new iPhones and the updated full-size iPad are far more important for driving higher profits at Apple this quarter.
Mixed supply-chain reports
The emerging consensus is that Apple will introduce an iPad Mini with a Retina display on Oct. 22. However, a Reuters report earlier this month stated that Apple wouldn't be able to build a Retina iPad Mini this quarter because of supply constraints for the screens. This report was corroborated by several other supply-chain sources.
It's hard to know whom to believe. Given the number of reports emerging this week about an imminent iPad Mini launch, the most likely scenario is that Apple will release a Retina iPad Mini, but it will be in short supply during the holiday season. That would essentially be a repeat of what happened last year.
iPad Mini blues
The iPad Mini came with great fanfare last year. Its smaller size and $329 price point were expected to help Apple win market share back from Google (NASDAQ: GOOG ) , Amazon.com, Samsung, and other Android vendors.
In its first few months on the market, the iPad Mini was a big hit. It helped drive an impressive 48% increase in iPad unit shipments last fall, despite significant supply constraints, followed by a 65% increase in the March quarter. However, it went stale very quickly.
In fact, this spring, Apple experienced its first year-over-year decline in iPad shipments. (This was also due in part to launch timing.) According to IDC calculations, Apple's global tablet market share plummeted from more than 60% in Q2 2012 to 32.5% in Q2 2013, while Android's market share soared from 38% to 62.6%. The launch of Google's new Nexus 7 tablet this summer means that Apple probably lost even more market share in Q3.
However, these figures don't fully capture the disappointment the iPad Mini caused. Apple executives have repeatedly stated that the iPad Mini carries a gross margin significantly below the corporate average. It also carries a much lower average selling price than the full-sized iPad. When you factor in cannibalization of the more profitable full-sized iPad, it seems quite likely that the iPad Mini has been a primary cause of Apple's profit decline this year.
The good news for Apple investors is that because the iPad Mini isn't a significant contributor to the company's profit, it's not a big deal if the new iPad Mini is delayed or available only in limited quantities. A lot more is riding on the expected fifth-generation iPad.