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What Apple’s (AAPL) Upcoming Tablet Means for Competitors

By: , dated July 10th, 2012

Shares of Apple (AAPL: Charts, News) recovered the $600 mark last week, and managed to hold onto its gains this week despite a volatile, choppy market. The stock is still up more than 50% since the beginning of the year, despite the loss of its visionary founder, Steve Jobs. New reports claim that Cupertino, Apple’s tentatively named iPad Mini, a 7.85-inch tablet designed to compete directly with Amazon’s (AMZN: Charts, News) best-selling Kindle Fire, Google’s (GOOG: Charts, News) Nexus 7 and the smaller variants of arch-rival Samsung’s Galaxy Tab, could hit the markets as early as October. Amazon’s Kindle Fire, which retails for $199, proved that the 7-inch size is a popular choice for new tablet customers, a new segment that Google and Samsung have scrambled to capitalize on. The “iPad Mini” is significantly smaller than the three larger iPad models, which feature 9.7-inch displays.

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Apple bulls claim that the device could “lock up” the entire tablet market for several years, if it wipes out its Android-based competitors in one fell swoop. Android-based tablets have been popular since they are far cheaper than the $499 new iPad as well as the $399 iPad 2. Apple has not announced a set price for the smaller iPad yet, but Topeka Capital analyst Brian White estimated a price tag between $250 and $300. “That would lure certain consumers away from these competitors with an overall better experience that includes a much more robust ecosystem,” White commented.

Analysts believe that Apple’s desire to preserve the company’s pristine margins will keep it from selling the “iPad Mini” at $199 to compete with the Kindle Fire and Nexus 7. Both respective tablets from Amazon and Google are sold at a loss, in order to general digital sales later. The “iPad Mini” is reportedly being assembled in Foxconn’s Brazil plant, away from its controversial Chinese plant, which has been besieged by suicides and allegations of work abuses.

Analysts also believe that a smaller iPad will attract many Android users due to Apple’s iOS ecosystem, which is considered to contain higher-quality apps in comparison to Android’s Google Play Store. The Google Play Store has been repeatedly criticized for its poor quality control of low-quality apps. Apple’s iOS platform spans across its iTunes store, its iCloud remote storage service, and its Apps Store, which contains 225,000 exclusive iPad apps. Sterne Agee & Leach analyst Shaw Wu, who is bullish on Apple, stated, “It (the iPad Mini) would be the competitors’ worst nightmare. The ball is in Apple’s court.”

Even without the “iPad Mini”, Android tablets have struggled to chip away at Apple’s dominant 70% market share. Of the Android tablets, only Amazon’s Kindle Fire was successful, claiming over half of the Android tablets market share by using a forked Android OS that ironically locked users out of the Google Play Store. By the end of last year, the Kindle Fire was trailing at a distant second to the iPad 2 in the tablet race. The rest of the Android tablet market, fragmented between Samsung, HTC, Sony and countless others, held mere slivers of the market. The upcoming arrival of Microsoft’s (MSFT: Charts, News) Windows 8 tablets – both its flagship Surface and other products from hardware partners – are also forecast to chip away at Android’s market share before affecting Apple.

Introducing a smaller, cheaper iPad follows Apple’s pattern of market dominance. It split its iPod line in a similar fashion – into the Classic, Nano, Shuffle and Touch – in order to increase the depth of its market reach. It repeated the same tactic with the MacBook, MacBook Pro and MacBook Air. Analysts are expecting the “iPad Mini” to easily repeat history, by appealing to customers who have yet to purchase an iPad, Android users, and more cost-conscious customers in key emerging markets.

CEO Tim Cook appears determined to maintain the momentum that Steve Jobs started with Apple’s rebirth. Under Cook, Apple has been aggressive, fighting patent wars and carefully timing product releases to counter its main competitors. Cook has also been a different kind of CEO for shareholders, offering Apple’s first ever dividend and share buyback plan; for the latter. Despite the meteoric rise of Apple’s market cap, which has made it the largest company in the world with a value of $572 billion, the stock is still fundamentally undervalued with a forward P/E of 11.3 and a 5-year PEG ratio of 0.6. Analysts have pinned the average target price between $700 and $1000 per share.

Other News About AAPL
Apple’s iOS Gets Popular in China With 17.3% Market Share
Apple starts to gain market share rapidly in China.
Apple iPad Mini’s Production Shifted to South America
Will a shift to Brazil avoid more sweatshop controversies?

Other Stocks in the News
Research In Motion Remains Neutral
Will anyone come along to buyout this fallen icon?
Microsoft Looks to Cut Into Apple’s Tablet Market Share With the Unveiling of “Surface”
Does Microsoft’s Surface stand a chance against Apple and Android?

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Leo Sun Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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