The following video is from this week's installment of The Motley Fool's Weekly Tech Review, in which Alison Southwick sits down with analysts Eric Bleeker and Lyons George to look at the biggest stories driving the tech sector this week.
In this segment, Eric and Lyons look at the cutthroat pricing battles in the tablet market as detailed this week in the Financial Times. While American consumers might be wowed by cheap tablet pricing such as Apple's (NASDAQ:AAPL) iPad Mini at the $330 price point, or Google's Nexus 7 at $200, or Hewlett-Packard's (NYSE:HPQ) Slate 7 tablet at $140, those "cheap" prices are nothing compared with the tablet battles in China.
Inside China, a crash below the $50 barrier has unleashed a massive tablet boom. How are companies doing this? For one, local processor companies have created "good enough" designs that sell for a fraction of the price of high-end designs from NVIDIA (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM). On its budget-priced Slate 7, HP used a design from Chinese chip designer Rockchip. When HP tried to sell its TouchPad tablet for prices starting at $500 in 2011, it used a Qualcomm design. Perversely, low-cost tablets are also cutting costs by salvaging memory from PCs.
The end result is that booming global tablet sales might not translate to much profit for investors; there's little money made in a $50 tablet selling at cutthroat pricing. Chip companies are facing pressure from Chinese designers whose prices they can't match. Top-end designs in America will still use Qualcomm or NVIDIA, but all the same these companies also aren't competitive in the fast-growing low-end segment of cheap tablets.
Likewise, as price competition intensifies in the U.S., it's bad news for hardware companies. A company like HP, which is belatedly making another attempt at finding tablet success, enters a field far more competitive than it was a couple of years ago. Likewise, a company like Amazon.com (NASDAQ:AMZN), which succeeded in part from selling Kindles below most competitors' pricing, is about to get more competition.
This is all great news for consumers, and bad news for investors hoping to find profitable plays in tablets. To hear Eric and Lyons' full thoughts, and some companies that could actually benefit from cheap tablets, watch the video.
Alison Southwick and Lyons George has no position in any stocks mentioned. Eric Bleeker, CFA, owns shares of NVIDIA. The Motley Fool recommends Amazon.com, Google, and NVIDIA and owns shares of Amazon.com, Google, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.