iPad mini set for launch: but how much will people pay?

 

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By Reuters

Posted on 23 Oct 2012 at 09:28

Apple is expected to make its biggest product move since debuting the iPad two years ago, with the launch tonight of a smaller tablet.

Apple hopes to beat back the charge from rivals such as Amazon and Google, while safeguarding its lead in the larger 10in tablet space that even deep-pocketed rivals such as Samsung have found tough to penetrate.

Our respondents on average said that they would pay $242 for a 7in iPad

Amazon's Kindle Fire and Google's Nexus 7 have grabbed a chunk of the lower end of the tablet market and proved demand for a pocket-sized slate exists, forcing Apple into a space it has avoided and at times derided, analysts say.

A smaller tablet would mark the first device to be added to Apple's compact portfolio under chief executive Tim Cook, who took over from co-founder Steve Jobs just before his death.

"Apple sensed early that it had a real winner with the iPad and that has proven to be correct," said Lars Albright, co-founder of mobile advertising startup SessionM and a former Apple ad executive. "It has a large market share, and to protect that market share it has got to be innovative."

Wall Street analysts have said for months that Apple was planning a less expensive version of the iPad to take on cheaper competing devices, a move they say might hurt its profit margins, but prevent its rivals from dominating an increasingly important segment.

The chief rival is Amazon, which proved a 7in tablet at around $200 has consumer appeal. The Kindle Fire, released last year for $199, was one of the hottest-selling holiday gadgets. It pressured Amazon's margins but gave it potentially millions of new high-spending customers.

Amazon sold more than a million Kindles a week during December, paving the way for others such as Google with its Nexus 7 to try and beat Apple in a market the company created.

The Internet retailer has now put its second-generation Kindle Fire HD in the market, which it says is the "best-selling product across all of Amazon worldwide", based on undisclosed US sales figures and international pre-orders.

Google's Nexus 7 tablet, built by Asian manufacturer Asus, quickly ran out of stock after its July launch. All three companies will be vying to get their devices on shopping lists during the Christmas season. "It's going to be the go-to holiday gift," said Michael Yoshikami, founder of Destination Wealth Management, which owns Apple shares.

Jobs antipathy

Steve Jobs famously derided the 7in screen, saying such a device should come with sandpaper so users can file down their fingers. But an internal email revealed during a patent trial showed he turned more favourable to the idea by early 2011.

Apple has sold over 84 million iPads so far, with the device accounting for 26% of Apple's fiscal third quarter revenue. Most Wall Street analysts expect Apple's new tablet to fall between 7in and 8in, saying its price will be crucial to its success.

The "starting sweet spot" for the tablet would be in the $249-$299 range, according to a survey of over a thousand consumers by Baird Equity Research.

"When asked what the most they would pay for a smaller iPad was, our respondents on average said that they would pay $242 for a 7in iPad and $268 for an 8in iPad," William Power, Baird Equity Research analyst, said.

Any erosion in Apple's industry leading margins also hinges on the price tag. It earned gross margins of 23% to 32% on US iPad sales between October 2010 and the end of March 2012, according to a July court filing by Apple.

Rivals haven't fared as well. Amazon's first Kindle Fire just about breaks even, according to IHS iSuppli estimates, and Google has said its Nexus 7 is being sold at cost.

Topeka Capital's Brian White argued a smaller tablet could overtake sales of the iPad in a few years. He is forecasting sales of 5 million to 7 million in the December quarter.