RIM, HP May Drive Price War to Chase Apple's IPad
RIM this week joined HP, Acer Inc., LG Electronics Inc., Samsung Electronics Co. and Dell Inc. in announcing plans to sell tablets. The new rivals will probably grapple for sales by appealing to consumers’ pocketbooks, said Rhoda Alexander, an analyst at market-research firm ISuppli Corp.
Apple used the iPad to build a market for devices that pack more features than a smartphone yet are more compact than a laptop. The iPad, with sales of more than $2 billion its first quarter, will control 84 percent of the market this year, ISuppli says. Lower prices on rival devices may slow Apple’s gains even if they don’t force it to follow suit, Alexander said.
“A price war is inevitable,” said Alexander of El Segundo, California-based ISuppli. “Whether Apple participates in a price war is another question.”
That echoes remarks by Kazuo Hirai, president of Tokyo- based Sony Corp.’s Networked Products & Services Group, who said 23 companies plan to build tablets. Sony has said it’s still considering whether to sell a model.
‘Very Competitive’ Price
RIM hasn’t set a price for the BlackBerry PlayBook tablet it introduced this week. The PlayBook, slimmer and lighter than the iPad, will be sold at a “very competitive” price, RIM co- CEO Jim Balsillie said in an interview this week.
RIM may eventually charge as little as $299 for the device, said Vijay Rakesh, an analyst at Sterne Agee & Leach Inc. in Chicago. That compares with $499 for the cheapest iPad. The PlayBook may lack key features found in the iPad, Rakesh said. In Europe, Toshiba Corp. is charging less than the iPad for its Folio 100 tablet. Dell’s Streak tablet costs as low as $299 with a two-year contract with AT&T Inc.
“You already have a lot of low-cost options out there, but they aren’t the devices people want,” said Alexander.
Samsung hasn’t officially announced a price for its Galaxy Tab, which will run on Google Inc.’s Android operating system and will be available by the holidays. AT&T and Sprint Nextel Corp. will subsidize the price, two people familiar with the arrangement said earlier this month.
Smartphones running Google’s operating systems have surpassed Apple’s iPhone in the U.S., according to researcher Gartner Inc.
Margins, Market Share
Still, sales have held up even though Apple hasn’t cut iPhone prices since the debut of Android phones, said Brian Marshall, an analyst with Gleacher & Co. in San Francisco. Cheaper alternatives also haven’t displaced the iPod as the bestselling digital music player.
“If Apple isn’t seeing price pressure in smartphones, it’s safe to assume that Apple will not see price pressure any time soon on the iPad,” Marshall said. He said the company may introduce iPads with different price levels to attract cost- conscious consumers, an approach Apple has used with the iPhone.
Investors will stay attuned to whether competition leads to narrower margins, he said.
Gross profit margin, the percentage of sales left after production costs, was 39.1 percent for Apple in the third quarter. Research In Motion’s margins were 44.5 percent last quarter and HP’s were 23.8 percent.
Tablet sales could top 50 million next year, with Apple taking a majority of them, Marshall said.
While Apple may not get involved in a pricing tussle, the company may see a loss of share, said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston.
“Imitation is the best form of flattery but the worst for market share,” Peruzzi said.
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