Apple Inc.'s Next iPad Faces A New Competitor: The iPhone 6 Plus

Sales of iPads have been falling for most of 2014, and there are concerns that the tablet’s sales are going to get worse. Now, as Apple Inc. gets ready to unveil new models this week, the iPad is facing its own worst enemy: the iPhone 6 Plus.

With a 5.5-inch diagonal screen the iPhone 6 Plus will mount a big challenge to tablets, in particular Apple's own 7.9-inch iPad mini with Retina display. “Our findings are those that purchased a phablet are less likely to also have a 7-inch tablet product.” ABI Research senior practice director, mobile, Jeff Orr, said. “The difference in what they would do with the 5.5-inch display versus the 7-inch display is probably not that different.”

But that might not be such a bad thing for Apple and perhaps one reason why Apple's revenue and profits have been climbing while iPad sales have been falling.

Apple would no doubt like to sell everyone a phone and a tablet every two years, but in lieu of that, Apple is choosing the phone because the margins are higher and users upgrade them faster.

The 16GB iPad Air with cellular, which retails at $629, makes the company a 51 percent margin ($319) based off a teardown performed by IHS in 2013. But those pale in comparison with the 16GB iPhone 6 Plus, which retails at a full unsubsidized price of $749 and only costs Apple $215.60 to manufacture, netting the company a 71 percent margin ($533.40) on each smartphone sold. The 4.7-inch iPhone 6, which retails at a full unsubsidized price of $649, saw a slightly smaller margin of 69 percent ($448.90).

In its third quarter ending in June, Apple’s iPhone sales improved 9 percent, to $19.8 billion, while iPads declined 8 percent, to $5.9 billion. Though iPad unit sales dropped 9 percent, to 13.2 million units, iPhone sales grew 13 percent, to 35.2 million units, contributing to the company’s overall quarterly profits of $7.7 billion in its third quarter.

With a portfolio of competing products, Apple increases the likelihood that its potential customers will buy Apple, rather than flip to Android products from Lenovo, Samsung or LG. In that respect, competition between products result in a greater good for Apple: more users in its ecosystem and likely to remain there and upgrade to new devices over time.

“Apple still sees itself as a premium provider, offering a higher-quality experience than what the Android vendors or Windows OS vendors are offering," Orr said.

The company is expected to unveil a number of new products on Thursday, including a rumored iPad Air 2, iPad mini 2 with Retina display and new Macs.