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Latest iPad may boost Apple's app, music revenue

Worries about Apple's profit margins on the new iPad may be misplaced. Cost increases in iPad manufacturing could be offset by increased media and storage purchases.
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Written by Larry Dignan on

Worries about Apple's profit margins on the new iPad may be misplaced. Cost increases in iPad manufacturing---due to a retina display, faster chip and overall higher bill of materials---could be offset by increased media and storage purchases.

Last week, Apple unveiled the latest iPad, which has a high resolution display, faster processor and improved camera, starting for $499. The iPad 2 now goes for $399 to start.

The improved specs of the iPad led many analysts to estimates that profit margins would fall somewhat for Apple. However, Apple kept the storage on the iPad 3. In other words, high def videos are likely to squeeze the 16GB on the starter iPad 3 pretty quickly.

Should that storage be maxed for many---how could it not?---iCloud is going to look like a viable option to offload some content. In addition iTunes Match, which goes for $24.99 a year, may also look useful.

Gabelli analyst Hendi Susanto said in a research note that the high-resolution capability of the iPad is going to drive more media consumption. That reality will drive the average revenue per user for Apple via higher iTunes and App Store sales as well as iCloud subscriptions.

"High resolution retina display means larger file sizes for camera, apps, games, digital publication, videos and other media yet the iPad 3 carries similar storage capacity with iPad 2," said Susanto. "This may create more needs of iCloud storage offerings. Retina display will make more compelling cases for more applications, more media publication, and consequently higher media consumption—more ARPU for Apple."

Add it up and Apple's next-gen iPad may drive a series of revenue streams.

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