Here's How the iPad Extinguishes the Kindle Fire In One Week

We are now T-minus six days until iPad 3 Day next Wednesday, which means our timeframe for last-minute rumors on what possible surprises Apple (Nasdaq: AAPL  ) may have up its iSleeve is quickly counting down.

The usual suspect
Never one to disappoint, Digitimes is out with a new report today with some more supply chain rumblings from the Far East on what to expect. In standard Digitimes fashion, take with six handfuls of salt and expect about 50% accuracy.

The publication's sources point to Apple launching only two iPad 3 models -- a 16 GB version and a 32 GB version -- which makes no sense. The higher-storage models carry the juiciest margins, so there's no reason to expect Cupertino to ditch the lucrative 64 GB model anytime soon. If anything, Apple has been moving to even higher capacities (and margins) lately, with the iPhone 4S recently getting 64 GB of storage, and I think Apple will eventually have a 128 GB iPad (but probably not this year).

A separate Digitimes report says Apple may be facing some supply constraints for its Retina Displays, which is believable, but even then I would still expect Apple to spread out production to include higher end models.

Where's the beef?
Here's the real meat of the report though: the report claims that Apple will unveil an 8 GB iPad 2 entry-level model. This is where the plot thickens, because this speculation checks out with Apple's practice of reducing storage on older models to tackle lower price points. It did this with the iPhone 3GS and iPhone 4 over the past two years.

Some type of iPad price cut seems inevitable, and this would be a killer move. Let's say that Apple moves the current entry-level 16 GB iPad 2 down to the $399 spot once the new iPad 3 takes the $499 place. If Cupertino puts an 8 GB iPad 2 at either $299 or $349, that would aggressively target some would-be Amazon.com (Nasdaq: AMZN  ) Kindle Fire buyers.

It would also inevitably take a bite out of some Barnes & Noble (NYSE: BKS  ) Nook Tablet shoppers too, just as B&N introduced an 8 GB model of its Nook Tablet at $199 to directly take on the Kindle Fire.

Consider this potential lineup against the competition.

Product Storage Display Price
Kindle Fire 8 GB 7-inch $199
Nook Tablet 8 GB 7-inch $199
  16 GB 7-inch $249
iPod Touch 8 GB 3.5-inch Retina Display $199
  32 GB 3.5-inch Retina Display $299
  64 GB 3.5-inch Retina Display $399
iPad 2 8 GB 9.7-inch $299*
  16 GB 9.7-inch $399*
iPad 3 16 GB 9.7-inch Retina Display $499*
  32 GB 9.7-inch Retina Display $599*
  64 GB 9.7-inch Retina Display $699*

Source: Amazon.com, BN.com, Apple.com. *estimated.

If Apple were to go for the jugular with a $299 iPad 2, the Kindle Fire and Nook Tablet should be shaking in their plastic body casings. Such an aggressive pricing move would knock down the Fire and Nook just as they were gaining momentum, and potentially jump the gun on an official Google (Nasdaq: GOOG  ) Nexus Android Tablet, which is rumored to begin production next month with a price potentially as low as $199.

The best defense is a good $299 iPad 2
It's no stretch to say that Apple already owns the tablet market. iSuppli's estimates show that Apple's market share slipped from 63.8% to 56.9% in the fourth quarter, partially due to the Fire and Nook gaining traction. A $299 iPad 2 would trounce those sales and reinvigorate the Mac maker's already overpowering lead in the tablet market.

On top of that, Digitimes believes that the lower model would be intended to also play defense against the upcoming slew of Microsoft (Nasdaq: MSFT  ) Windows 8 tablets that are due out later this year. Microsoft is now ramping up the OS, with a Consumer Preview released just yesterday at Mobile World Congress.

Let the countdown begin
The good news is that we won't have to wait too long. Apple has gotten very aggressive with pricing strategy over the past few years. Cupertino wowed the market with the original iPad's pricing at $499, while most analysts at the time were expecting the then-unnamed tablet to retail for between $800 and $1000. Ultrabooks are also having trouble competing with the MacBook Air's aggressive price points.

In all likelihood, though, Apple may end up pricing the 8 GB iPad 2 at $399 and eliminate the 16 GB second-generation model like it has done with iPhones in the past -- but a Fool can dream, can't he? Just for the record, if we see a $299 iPad 2 next week, you heard it here first.

Wow us again, Apple. The Kindle Fire is toast.

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Fool contributor Evan Niu has already decided to buy an iPad 3. He owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. 

The Motley Fool owns shares of Microsoft, Apple, Google, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Apple, Google, Amazon.com, and Microsoft; creating a bull call spread position in Apple; and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2012, at 9:32 PM, Evanisafool wrote:

    Does this fool know what he's talking about? The Amazon fire released only a few months and it has ate 15% of the tablet market. What your saying doesn't make sense. You said "If the iPad 2 lowers down to 299, Amazon Fire should be shaking". Well, if the iPad 2 goes down to 299, what makes you so sure the Amazon Fire will not go down to 150? So "if" the Amazon Fire goes down to 150, iPad 2 should be shaking too? Please... a whole bunch of nonsense with these if's... lol

  • Report this Comment On March 01, 2012, at 10:06 PM, skippywonder wrote:

    The Fire is already a loss leader (or a break even proposition at best, which is doubtful), so a $50 drop in price for the Fire would be unlikely or a devastatingly bad move for Amazon.

    It's hard to know how much of the market the Fire has, since Amazon won't give sales figures, but it is estimated they sold 5-5.5 million last quarter. Not bad, but by next quarter it will be apparent they do not own 15% of the market. They may have achieved 15% penetration in their inaugural quarter, but it remains to be seen whether they keep selling. An iPad of any kind offered anywhere near the price point of the 7" underpowered Fire would be competitive to be sure.

  • Report this Comment On March 01, 2012, at 10:12 PM, thevandman wrote:

    @Evanisafool

    If's imply nonsense. It would be nonsense if the author didn't present a possible scenario. There is a lot of sense in stating that a $299 iPad 2 would put pressure on the competition.

  • Report this Comment On March 01, 2012, at 11:02 PM, mesmd wrote:

    Apple will continue to control the maket no matter what? Unless they go out of business, their products are bought for consumer pride, performance, and future ingenuity.

  • Report this Comment On March 02, 2012, at 1:16 AM, fatmonk wrote:

    lower the price is a cool idea. The tablet is the mobile gate keeper between computer and the phone. it is the best way to use $100billion. Apple can make the money back by iBook,movie,shows, apps.

  • Report this Comment On March 02, 2012, at 1:45 AM, veggiedude wrote:

    It makes perfect sense Apple would eliminate the 64GB version, because they are pushing iCloud as the storage solution. That means you can forget any hope of a 128GB iPad.

  • Report this Comment On March 02, 2012, at 6:51 AM, anobserver2011 wrote:

    I think that Apple is worried about the lower price Kindle Fire and a future larger Fire. Why wouldn't they? Any company with any brains would worry about the competition. It would be dumb not to. And Apple has purchasing power, so they don't have to do the dirty marketing. Their buddies online, and in the media do that for them. Like they say, money and good press go together - one follows the other.

  • Report this Comment On March 02, 2012, at 10:13 AM, Popnfresh100 wrote:

    While a $199 price point on a 10" tablet would be killer, I simply don't see where that number is being pulled from in the first place.

    Not the digitimes article, for sure, and not any sort of logical look at the production cost and Apples margins.

    We know from the nook that going from 16 GB to 8 GB cuts perhaps $50 from the cost. That would put the Ipad 2 price at $450. If we add in an ADDITIONAL $100 cut for being the "old model", it's still $350.

    A 10" tablet has a significantly higher cost of production than a 7" tablet. This would be a major loss leader for a company that doesn't do loss leaders.

    If Apple introduces

  • Report this Comment On March 02, 2012, at 10:25 AM, leonhart03 wrote:

    Yeah, the fire did achieve some impressive penetration in a few months. But look at the return rates for a glimpse at the real picture. 20-25% of those devices are being sent back either from defects or because they didn't put near enough guts into it to support it's overinflated source of content. They definitely don't hold even 15% of the tablet market.

  • Report this Comment On March 02, 2012, at 3:52 PM, luxetlibertas wrote:

    Apple deeply cares about its margins, and with flash memory as cheap as it is now, 8GB instead of 16GB does not help much to reduce the component cost.

    And with demand so extremely healthy a price cut is also unnecessary and therefore not to be expected. They might introduce a somewhat cheaper 8GB iPad 2 model (USD 399 or 449), but the entry level iPad 3 (or iPad HD) model on the other hand might be USD 569 to cover the increased manufacturing cost.

    Low flash memory prices could well lead to a 128GB model (now or later this year), because of the increased storage requirements for multimedia iBooks (in education, for example) and for more detailed graphical content in general. Bandwidth is still too expensive for iCloud to make up for these trends.

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