Apple Inc. (AAPL) plans to debut a smaller,
cheaper iPad by year-end, two people with knowledge of the plans
said, to help maintain dominance of the tablet market as
Google
Inc. (GOOG) and
Microsoft Corp. (MSFT) prepare competing handheld devices.
The new model will have a screen that’s 7 inches to 8
inches diagonally, less than the current 9.7-inch version, said
the people, who asked not to be identified because Apple hasn’t
made its plans public. The product, which Apple may announce by
October, won’t have the high-definition screen featured on the
iPad that was released in March, one of the people said.
A smaller, less expensive iPad could undercut the ambitions
of Google, Microsoft and
Amazon.com Inc. (AMZN) to gain traction in the
advancing tablet market, said Shaw Wu, an analyst at Sterne Agee
& Leach Inc. The new device will probably have a price closer to
Google’s Nexus 7 tablet and Amazon’s Kindle Fire, both of which
have 7-inch screens and cost $199.
“It would be the competitors’ worst nightmare,” Wu said
in an interview. “The ball is in Apple’s court.”
Trudy Muller, a spokeswoman for Cupertino, California-based
Apple, declined to comment yesterday.
Since the iPad went on sale in April 2010, Apple has
dominated the tablet market, which is predicted by DisplaySearch
to reach $66.4 billion this year. Apple has 61 percent of the
market, according to
Gartner Inc.
Apple’s rivals are eager to gain a toehold. Google said on
June 27 that it will sell a tablet-style device called the Nexus
7. Earlier in the month, Microsoft announced a tablet called
Surface that will have a similar screen size as the current
iPad. Amazon’s Kindle Fire was released last year.
Google Strategy
The entrants’ best chance of success has been to focus on
markets where Apple had no toehold, said Jan Dawson, an analyst
at Ovum Ltd. The Surface comes in two models that are most
likely to appeal to buyers who want to continue using
Microsoft’s Windows software, Dawson said. While Microsoft has
not disclosed pricing or timing for either, the higher-end
version will probably be pricier than the iPad and targeted more
at an emerging class of laptop PCs called Ultrabooks, he said.
The latest iPad
ranges in price from $499 to $829.
Google’s Nexus 7 could stack up well against Amazon’s
Kindle Fire, which went on sale in November. The Nexus 7,
manufactured by
Asustek Computer Inc. (2357), has a faster processor
and better battery life than the Kindle Fire, as well as a
front-facing camera.
Still, competing with a lower-priced iPad will be more
challenging, Wu said. Apple benefits from having more than
225,000 apps that have been tailored specifically for the
current iPad.
Apple Retail
The company also boasts more than 360 retail stores where
the device can be purchased and tested by consumers. Google said
the Nexus 7 will be available only from its online store, while
Microsoft will sell its tablets online and at its smaller chain
of 20 stores.
Apple has considered introducing a smaller tablet since the
original iPad was released, one person said. That approach has
worked for Apple’s iPod, which is the world’s top music player
and comes in various sizes and colors.
Yet Apple co-founder
Steve Jobs spoke skeptically of
smaller tablets before his death in October. He said in 2010
that the iPad’s current size was the minimum required to ensure
a good user-experience and enable attractive software
applications.
The screen of the small model will have the same number of
pixels as those in the iPad before it was upgraded to the so-
called Retina Display earlier this year, one person said.
Fatter Margins
Apple also may be at an advantage profit-wise. The
gross
margin on the latest iPad is about 37 percent, according to Wu.
Apple could earn a similar profit on a smaller iPad because it
will probably use the cheaper screen, Wu said. Apple can also
charge more for the device without sacrificing sales, he said.
“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.”
Amazon, by contrast, loses money on every Kindle Fire it
sells, with the aim of profiting from sales of books and other
digital media. At the $199 price of the Nexus 7, Google’s plan
should be to break even on the hardware, in exchange for the
opportunity to win advertising and related revenue, said Michael Gartenberg, an analyst at Gartner Inc.
Apple’s plans to release a smaller sized iPad were reported
previously in blogs, including
DigiTimes.
Microsoft’s Stakes
The stakes are high for Microsoft and Google to succeed at
hardware sales. Both companies have risked alienating long-time
hardware partners, such as Samsung Electronics Co., by selling
their own tablets, Gartenberg said.
“How does Samsung make money in tablets, when Google is
partnering with Asus to make a product that makes no money?” he
asked.
A failure to gain traction with the Nexus 7 and Surface,
respectively, might also undermine the credibility of Google’s
Android strategy and of Microsoft’s introduction of the next
version of the
Windows operating system, Wu said. If Google and
Microsoft can’t make a must-have product around their own
software, consumers may be harder to convince that hardware
manufacturers could do it, he said.
“They’re really sticking their necks out this time,
putting their own brands on this front and center,” Wu said.
To contact the reporters on this story:
Peter Burrows in
San Francisco at
pburrows@bloomberg.net;
Adam Satariano in San Francisco at
asatariano1@bloomberg.net
To contact the editor responsible for this story:
Tom Giles at
tgiles5@bloomberg.net
