Apple Inc. (AAPL) debuts its most significant overhaul of the iPad today in San Francisco. For competitors trying to get a foothold in the tablet market, the most important announcement may be what Chief Executive Officer Tim Cook does with the older models already on the shelves.
As it introduces a new iPad decked out with faster processing speeds and a sharper screen, Apple may also slash the price of the existing model from $499, said Chris Jones, an analyst at Canalys, a technology research firm. That would squeeze rivals such as Amazon.com Inc. (AMZN), whose $199 Kindle Fire is targeted at budget-conscious customers, he said.
Apple has cut the price of older models to attract bargain- hunting shoppers when unveiling a new product aimed at the high end, a pincer movement used with success on the most recent iPhone. While today’s focus will be on the new version, which will have access to speedier wireless networks, the iPad 2 price cut may have more significance to makers of cheaper tablets that haven’t been able to match Apple’s success.
“It will put pressure on those who are trying to undercut the iPad on price,” said Jones, who said Apple may lower the price of the cheapest iPad 2 by $100 to $399. “The market has changed in the past few months with the arrival of Amazon.”
When Apple introduced the iPhone 4S in October, it reduced the price of the iPhone 4 to $99 and the made the iPhone 3GS free with a two-year wireless contract. Older models account for about a quarter of total iPhone sales, Jones said.
Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment on plans for today’s announcement.
The new iPad will sport a high-definition display, run a faster processor and work with LTE wireless networks, people familiar with the product said in January. The expected iPad overhaul is Apple’s most significant for the tablet since its 2010 debut and will help draw both new customers and existing owners ready for an upgrade, said Carl Howe, an analyst at Yankee Group.
Apple gets about 20 percent of its sales from the iPad, attracting consumers as well as business users. With the device’s mix of touch-screen functionality and as much computing power as some laptops, Apple has created a new category of consumer-electronics devices.
Amazon’s Kindle Fire tablet, which went on sale in November, has emerged as Apple’s most credible competitor. Still, Apple controls 73 percent of the tablet market, according to Forrester Research Inc. Tablets introduced by Research In Motion Ltd. (RIMM), Samsung Electronics Co. (005930) and Hewlett-Packard Co. (HPQ) haven’t gained much interest.
“It’s an iPad market, and then there’s everybody else,” Howe said. “They are going to be selling them as fast as they can make them.”
Amazon has been able to make some strides in the tablet market with the Kindle Fire because of its lower price, and Amazon’s website gives it a sales channel on par with Apple’s retail stores, said Sarah Rotman Epps, an analyst at Forrester. Amazon’s selection of movies, music and applications also is appealing to customers, she said.
“Tablets are about services,” said Rotman Epps. “That’s why Amazon has succeeded where others have failed.”
A new wave of tablets will be entering the market with Microsoft’s introduction of Windows 8, a remake of the company’s flagship operating system intended to work more easily with smartphones and tablets. Hewlett-Packard has said it will introduce a tablet using the software, which analysts expect will be released later this year.
Waiting for Windows
While Windows 8-based products are being completed, Apple may sell 11.3 million iPads in the quarter ending March 31, more than double unit sales from a year earlier, according to Brian Marshall, an analyst at ISI Group in San Francisco. The company may sell 60 million iPads in all of 2012, ISI predicts, about 50 percent more than last year.
Apple is the largest maker of personal computers if the iPad is included in the count, according to Canalys.
Microsoft, based in Redmond, Washington, will eventually become a strong competitor, though the longer Windows 8 takes to hit the market, the harder it will be to gain traction with customers, said Rotman Epps.
Today’s event is Apple’s first major product unveiling since the October death of co-founder Steve Jobs. Jobs led the introductions of the previous two iPads, in 2010 and 2011. At the event, Apple may also introduce an updated version of Apple TV, its hockey-puck-sized device for buying movies and shows through a TV set, according to Gene Munster, an analyst at Piper Jaffray Cos. The device is sold out on the websites of retailers such as Best Buy Co., an indication a new model is coming.
The iPad has helped make Apple the world’s most valuable company, worth $494 billion based on yesterday’s $530.26 closing stock price. Since the device went on sale in April 2010, Apple’s stock has risen 125 percent and quarterly sales have almost tripled.
One reason Apple has been able to maintain a dominant share of the tablet market is that wireless carriers don’t play as prominent a role in sales as they do with smartphones, Howe said. Customers visiting a Verizon Wireless or Sprint Nextel Corp. (S) store are often steered to a smartphone running Google Inc. (GOOG)’s Android software instead of an iPhone, he said.
Apple also benefits from its chain of more than 360 retail stores and the thousands of applications that are tailored specifically for the iPad, said Forrester’s Rotman Epps.
Also helping Apple’s iPad sales is corporate demand. The company is on pace to sell $10 billion worth of iPads to businesses this year, according to Forrester, succeeding in a market that has traditionally been Microsoft’s strength.
Bob Tinker, CEO of MobileIron Inc., which helps companies integrate iPads and other mobile devices, said that last year the largest iPad deployments among enterprise customers were about 6,000 devices. Now, it’s not uncommon to see more than 20,000 being given to employees at a single company.
“That type of deal went from being something that was special to something that’s happening many times a month,” Tinker said.
As business customers buy the new, more expensive iPads, cutting the price of the iPad 2 will help Apple appeal to customers who would have otherwise bought a device from Amazon.
“That would be a good defensive move by Apple,” said Canalys’s Jones.
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