July 9th, 2012
by David Zeiler, Associate Editor, Money Morning
If Apple Inc. (Nasdaq: AAPL) does unveil an iPad Mini this fall - and fresh reports from both Bloomberg News and The Wall Street Journal indicate it will - the new device could help Apple lock up the tablet market for years.
The iPad Mini, as tech pundits are calling it, could debut as early as October. It's thought to have a 7.85-inch screen, significantly smaller than the 9.7-inch display of the three iPad models released so far.
Such a product would compete directly with Amazon.com's (Nasdaq: AMZN) Kindle Fire as well as the just-announced Nexus 7 from Google Inc. (Nasdaq: GOOG). Both sport 7-inch screens and a $199 price tag aimed at buyers unwilling to pay $499 or more for a new iPad (or $399 for an older iPad 2).
It would be the competitors' worst nightmare," Shaw Wu, an analyst at Sterne Agee & Leach Inc., told Bloomberg. "The ball is in Apple's court."
There was no word on what the iPad Mini might cost, but in a note yesterday (Thursday) Topeka Capital analyst Brian White estimated a range of $250-$300.
"That would lure certain consumers away from these competitors with an overall better experience that includes a much more robust ecosystem," White said.
Apple's desire for generous profit margins will keep it from pricing an iPad Mini at $199. Both the Amazon Kindle and Nexus 7 lose money at $199.
With its impressive ecosystem, Apple can get away with charging more for a similar product. That ecosystem, built upon the iOS platform that runs all of the Cupertino, CA company's mobile devices, includes the iCloud remote storage service as well as 225,000 apps designed just for the iPad.
"This isn't like the old days, when it cost thousands of dollars more to buy an Apple product," Wu said. "Fifty or a hundred bucks wouldn't be enough to make someone switch."
Fear the iPad Mini
An Apple entry into the 7-inch tablet market would rob rival tablet makers of an obvious competitive niche.
The smaller form factor and much lower price gave many hardware makers (most using Google's free Android operating system) true differentiation from the previous iPad models.
The iPad Mini would extend Apple's reach much deeper into the tablet market -- and there's little competitors can do about it. It's hard to cut prices to gain market share when your margins are razor-thin or you're selling at a loss.
Even without an iPad Mini, sales of non-Apple tablets have been weak. Only the Kindle Fire has had any real success. Now both the Nexus 7 and the iPad Mini are coming for the Fire.
According to research firm IDC, Apple's tablet controlled 70% of the worldwide market in the first quarter of 2012. Analysts had been predicting that Apple would gradually lose market share over the next few years to tablets running Android and Microsoft Corp.'s (Nasdaq: MSFT) upcoming Windows 8 operating system.
But an iPad Mini would change that math. Such a product would appeal not only to cost-conscious customers in places like the United States, but also to millions of customers in less wealthy nations.
An Apple (Nasdaq: AAPL) Dominance Strategy
Note, too, the timing of the iPad Mini "leaks" to two major news sources.
Coming just days after the announcement of the Google Nexus 7 and a mere week after Microsoft unveiled its own Surface tablet, it certainly looks intentional.
Why? Putting out word that an iPad Mini is on the way will retard sales of other 7-inch tablets while consumers wait for the Apple device to arrive in the fall.
And it's the second such incident in the past week.
Last week Bloomberg ran a story based on leaked information about an iTunes upgrade mere minutes after Google announced the Google Play store would add movies, TV shows and magazine subscriptions.
So much for Apple's legendary secrecy.
A likely explanation is that the Apple of Tim Cook is determined not to repeat the mistakes of its past. The company clearly intends to do whatever it takes to prevent iOS from suffering the same fate the Mac did at the hands of Windows in the 1990s.
That includes everything from intentional leaks to the press, to patent wars, to wielding the market power of its vertically integrated ecosystem.
In a recent article for PCMag.com, Tim Bajarin, president of research firm Creative Strategies said many tablet makers fear Apple indeed has the power to "iPod" the tablet market - that is, dominate for years and years.
"The bottom line is that it's really all about the platform. At the moment, I don't see anybody creating a unified and powerful enough platform that comes close to what Apple already has in the market," Bajarin wrote. "Unless something changes dramatically in the Android and Windows camps to bring about a seriously cohesive platform, Apple could potentially "iPod' the tablet market given its initial iPad momentum and the mature platform."
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