The unthinkable is happening at Apple
The class act of Cupertino may have priced its iPad out of the market this holiday season.
Goldman Sachs analyst Bill Shope is advising clients to keep an eye on iPad sales this quarter, fearing that the company is facing some near-term demand challenges for its iconic tablet. He argues, and rightfully so, that Apple is long overdue for a price cut.
It doesn't take a rocket scientist to figure out that Apple -- until now the runaway market share champ in this nascent niche -- is finally facing legitimate competition at ridiculously attractive price points.
Kindle Fire hits the market today at a head-turning $199 price point. As a seven-inch tablet, it's certainly smaller than the iPad, but that may not necessarily be a bad thing. (Nasdaq: AMZN)
Barnes & Noble's
Nook Tablet hits stores in two days. The superstore chain's new gadget costs $50 more than the Kindle Fire, but it does have beefier specs in some areas. (NYSE: BKS)
- There's a glut of cheap non-Android tablets out there, as Hewlett-Packard
and Research In Motion (NYSE: HPQ) mark down their first-generation devices while pondering what do to next. Android manufacturers that naively entered the market at high price points with impressive spec sheets are taking a more realistic pricing approach this time around. (Nasdaq: RIMM)
They've got you surrounded, Apple. The days of selling roughly three out of every four tablets sold are over.
Limbo rock in limbo
It wouldn't surprise anyone to see Apple come up short on iPad shipments this quarter. It was all too convenient to have Amazon introduce the Kindle Fire in September, leading consumers to hop on the fence to see what the $199 tablet is all about before paying $499 and up for an iPad.
Some will argue that the Fire and Nook tabs don't come in 3G flavors, but is that really a deal breaker? If so, we're comparing the Kindle Fire to a $629 iPad that is more than three times as expensive (and that's before we delve into the 3G connectivity plans).
One way or another, Apple's next step here will be down.
How low can Apple go? The original iPhone hit the market at $599, and the markdowns have been aggressive. However, Apple was aided by wireless carriers subsidizing the popular smartphone. No one is going to subsidize an iPad, especially the cheaper Wi-Fi model.
Apple's iPod touch has stuck to more moderate pricing moves, but there hasn't been a whole lot of pressure for the company to cut prices there. It owns that space. It was never vulnerable the way that the iPad is right now.
Back to Apple's future
There was a time when Apple had to settle for a thin slice of the PC market. Macs were generally well liked by everyone, but they just weren't worth a healthy market premium for most consumers. Mac and PowerBook owners are still in the minority, but it's a much larger minority now.
Apple doesn't want to go back there. Just as Android phones are now outselling Apple's iOS handsets, there isn't really a reason for the same scenario to play itself out with tablets. Many of the popular Apple App Store downloads are available on Android. Streaming video, browsing the Web, and checking email isn't materially different, at least not to the point of justifying paying 150% more for an iPad over a Kindle Fire.
"But the screen is smaller..."
"But the Apple ecosystem rocks..."
"But there's no camera..."
Keep believing that these knocks are somehow worth 250% of the price of a new Kindle Fire, but then watch Amazon and Barnes & Noble combine to outsell Apple in this country during the holiday season.
The silver lining as Apple hands the smartphone pole position to Google's
Don't go there. When a fight boils down to the greedy vs. the hungry, bet on the ones with the grumbling stomachs.
The funny thing is that the carrier-subsidized iPhone is reasonably competitive to Android handsets, and it's still losing ground to Android. Why can't this play out with tablets? In other words, even a price cut may not be enough -- but it at least gives the current market share leader a chance.
Apple had no problem selling $500 to $830 iPads when all of the major manufacturers were in that ballpark, but there's a new line in the pricing sand. If Apple's response is to simply roll out a seven-inch iPad early next year at $299 -- and perhaps shave its flagship design by $100 each -- that may be enough to at least keep it in contention.
Either way, it's time to kiss Apple's healthy iPad profit margins goodbye.