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Discounted iPad 2 attracting new customers, 'unlocking' education demand

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At the launch of the new iPad, Apple continued selling the previous iPad 2 at a discounted $399 price. Over its first quarter, the new price point is attracting a new audience of buyers, particularly in education.

Apple's chief executive Tim Cook predicted the new $399 model would be attractive to education markets at its launch. In yesterday's quarterly earnings call, Cook reiterated that the new model appeared to be broadening the potential market for iPad buyers.

When asked by Katy Huberty of Morgan Stanley about "the potential to move to lower price points on the iPad over time and see significant incremental demand," Apple's chief financial officer Peter Oppenheimer answered:

"Look, Katy, we're just learning about be the elasticity of demand and the $399 price point. It's doing well. But I have to tell you, the new iPad is on fire, and we're selling them as fast as we can make them. So we'll learn more over this quarter especially as we get through the education buying season, which looks terrific for us especially on the iPad."

Oppenheimer had previously stated, "iPad continues to open doors for new customers with whom Apple previously had no relationship. As we enter the K-12 institution buying season, we're hopeful that iPad will be a popular choice."

He also revealed that, in the US, K-12 schools were now buying twice as many iPads as Macs, despite the fact that Apple's conventional computer sales still set a new sales record for the quarter.

Cheaper iPad 2 unlocking new demand

Asked by Tony Sacconaghi of Sanford C. Bernstein & Co to "talk more broadly just about what you might be learning about lower priced — price points on both the iPhone and iPad," Cook answered:

"Sure. Tony, on iPad 2, we're, with the change in the entry price to $399, we're actually thrilled with the results that we've seen, although, as Peter said, it's only been a few weeks. And so it's too early to make a — come to a clear conclusion.

"But from what we are seeing, this unlocks some education demand that is probably a more price-sensitive customer. Also, in several other countries, there was a marked change in demand at that price point.

"And so on the early going, we feel great about it. But I'd also point out that the new iPad is — was current — was supply constrained last quarter for the full 3 weeks or so it was shipping and is actually still constrained. And so the mix of the new iPad to the iPad 2, we're not certain of what that is yet.

"But we are certain, with what we've seen so far, that the absolute sales of iPad 2, at least in the early going, is very exciting. On the iPhone, we continue to be very happy with the moves that we made in pricing just a few months ago on the iPhone 3GS and the iPhone 4. And both of them contributed to our ability to achieve $35 million in sales, which is our second highest quarter of all time."

Sixteen year old blogger Matt Richman noted that Apple's average selling price has dropped for both iPad and iPhone, observing that "the $399 iPad 2 must be selling very well for it to make iPad ASP drop more than 8 percent in one quarter."