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Apple Inc is expected to make its biggest product move on Tuesday since debuting the
iPad two years ago, launching a smaller, cheaper tablet into amarket staked out by Amazon.com Inc and Google Inc.
Apple hopes to beat back their charge onto its home turf of
consumer electronics hardware, while safeguarding its lead in
the larger 10-inch tablet space that even deep-pocketed rivals
like Samsung Electronics have found tough to penetrate.
CEO Tim Cook kicked off Tuesday's event, held at the opulent
California Theater in San Jose, by touting the just-launched
iPhone 5 as the fastest-selling smartphone in history. He added
that there are now 200 million devices running iOS6, the fastest
upgrade rate he has seen since the mobile software was launched
about a month ago.
Amazon's Kindle 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. That has forced 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 Cook, who took over from
co-founder Steve Jobs just before his death.
"Apple sensed early that they 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.
"They have a large market share, and to protect that market
share they have got to be innovative," he said.
In a rarity for a company that tightly controls events,
Apple livestreamed its invitation-only presentation — where it
is expected to unveil the mini tablet — to Apple devices such
as the iPad and Macintosh computers at 10 am PT (1700 GMT).
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 margins, but
prevent its rivals from dominating an increasingly important
segment.
The chief rival is Amazon, which proved a 7-inch 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.
HARD-CHARGING TABLETS
Amazon sold more than a million Kindles a week during
December, paving the way for others like 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
U.S. sales figures and international preorders.
Google's Nexus 7 tablet, built by Asian manufacturer Asustek
, quickly ran out of stock after its July launch.
All three companies will be vying to get their devices on
shopping lists during the U.S. holiday season, which
traditionally starts next month.
"It's going to be the go-to holiday gift," said Michael
Yoshikami, founder of Destination Wealth Management, which owns
Apple shares.
The stock was down 1 percent at $626.88 in the morning,
after gaining 4 percent on Monday in the run-up to the event.
PRICE IS KEY
Apple now has just one 9.7-inch iPad, starting at $499. The
previous version, or iPad 2, is available for $399.
Jobs famously derided the 7-inch 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 favorable to the idea by early 2011.
Apple has sold over 84 million iPads so far, with the device
accounting for 26 percent of Apple's fiscal third quarter
revenue. Most Wall Street analysts expect Apple's new tablet to
fall between 7 inches and 8 inches in size, 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 7-inch iPad and $268 for an 8-inch 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 percent to 32
percent on U.S. 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.
Apple shares rose 4 percent on Monday, buoying the benchmark
S&P 500 index. While the stock is up 56 percent this year, it is
currently down 10 percent from its record high of $705 on Sept.
21, struck by concerns about iPhone-supply disruption at
contract manufacturer, Foxconn Technology. Sharp criticism about
errors in its Maps service also hurt.
"Apple's stock is up a ton and it is only logical that it
will take a breather after a while," Yoshikami said. "I don't
think there is any fundamental issue beyond that."
