As iSuppli analysis proved to us yesterday, the iPad should produce some "magical" money for Apple (Nasdaq: AAPL), with the company estimated to reap anywhere from $240 to $351 in gross profit on each sale of a Wi-Fi-only version of the device. It's worth noting the 3G versions should prove even more profitable. Imagine iPad unit shipments reaching 25 million to 30 million in a couple of years (some suppliers estimate 2010 shipments reaching 8 million to 10 million), and factor in iTunes/App Store sales, and the product should be big business even for a company of Apple's size.
But for the iPad to reach those lofty levels, my guess is that it needs to establish a position in the tablet market closer to that of the iPod in the MP3 player market, rather than the position the iPhone holds in the smartphone market. In other words, the iPad can't simply be a leading product that fares well against the competition. It has to be a dominant product that leaves the competition in the dust. And there are plenty of competitors coming out of the woodwork, bent on seeing the iPad fail to reach the latter goal.
Where the competition stands
Of these competitors, Hewlett-Packard (NYSE: HPQ) has drawn the most attention with its upcoming Slate tablet. But to be honest, I think HP is the big-name challenger that Apple needs to worry least about right now: The Slate's limited battery life, and (more importantly) its use of Microsoft's (Nasdaq: MSFT) Windows 7 operating system rather than something more touchscreen-optimized, should doom it from the start to also-ran status.
On the other hand, Nokia's tablet plans, which were reported earlier this week by Rodman Renshaw analyst Ashok Kumar, could amount to something a little more competitive. Nokia will almost certainly eschew Windows 7 in favor of the Linux-based MeeGo operating system that it's working on with Intel (Nasdaq: INTC), and its relationships with hundreds of wireless carriers around the world leave it in a great distribution and marketing position.
Likewise, Microsoft's planned Courier tablet, with its innovative dual-screen design and journal software, could carve out a niche with students and workers looking for a tablet to be a productivity device as much as an entertainment device. And while I think Google (Nasdaq: GOOG) has made a serious mistake by supporting its Chrome OS operating system as a tablet platform in addition to Android, there should still be some decent Android tablets on the market by the end of the year, especially with chip makers such as Broadcom (Nasdaq: BRCM) and Marvell Technology providing Android tablet reference designs.
How Apple needs to respond
To ground the competition before it can produce real momentum, Apple needs to quickly address the two issues that rivals are bound to try and hammer the company over: the iPad's lack of Adobe Flash support, and its high price tag due to a lack of carrier subsidies for 3G models. Already, I can see competitors running ads showing how their tablets can handle numerous Flash-based Web videos and games that, alas, the iPad can't. And I can already see carriers chomping at the bit to show how much cheaper one of their subsidized tablets is than any 3G iPad.
If Apple swallows its pride and changes its attitude toward Flash, and if it works out subsidy arrangements with AT&T (NYSE: T) and some major international carriers, the iPad might just smoke its competition. The device's strengths -- the iPhone OS, a huge app base, great battery life, and unrivaled mindshare -- could be enough to achieve iPod-like dominance. But the clock is definitely ticking.
- Where the Money Is: August 22
- 4 Stocks Making Moves
- 4 Stocks Making Moves
- What Does Wall Street See for Apple's Q3?
- 4 Stocks Making Big Moves
Fool contributor Eric Jhonsa is breaking tennis racket strings at an alarming rate. He has no position in any of the companies mentioned. Intel, Microsoft, and Nokia are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers selection. Apple and Adobe Systems are Motley Fool Stock Advisor recommendations. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended a buy calls position on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.