Smaller iPad expected Tuesday, but at what price?
NEW YORK (CNNMoney) — Apple is expected to unveil its worst-kept secret, the iPad Mini tablet, later on Tuesday. There’s one unknown detail everyone is fixated on: the price tag.
It will reveal whether Apple is gunning for small-tablet rivals or trying to create a completely new market.
Analysts’ guesses are all over the map, generally ranging from $249 to $349. And they’re split on what Apple hopes to achieve with the iPad Mini, which is rumored to feature a 7.8-inch screen. (The traditional iPad clocks in at nearly 10 inches.)
“We see this as Apple playing both defense and offense,” said Shaw Wu, an analyst at Sterne Agee. “They’re defending against 7-inch tablets from its competitors, plus going after even more potential PC buyers who instead opt for tablets.”
Wu expects the iPad Mini to cost between $299 and $349. He thinks even that price point would make it “very competitive” with $199 7-inch tablets from Google and Samsung. Amazon’s cheapest offering, the Kindle Fire, starts at $159.
Those three rivals went for the jugular by undercutting Apple’s $499 iPad on price — effectively giving customers an option between low- and high-end tablets.
But if the Mini comes in somewhat close to $199, it could change that game entirely.
“If Apple is able to price the iPad mini at ~$250, the product will be a barnburner, especially during this holiday season,” Deutsche Bank analyst Chris Whitmore wrote in a note to clients on Monday.
Whitmore is in the “Apple’s trying to create a new market” camp. He thinks the $250-$350 price point is an underserved market segment.
His projections came in close to those of a group of JPMorgan analysts, who believe the iPad Mini’s will start at $249. The group waved off concerns about margins and possible competition with the iPod Touch, saying Apple’s “overarching focus” is on grabbing a bigger share of the overall tablet market.
The teeny iPad will appeal to “more price-sensitive users and the e-reader crowd,” the JPMorgan analysts wrote on Monday.
JPMorgan specifically credited Amazon’s Kindle Fire and Google’s Nexus 7 with creating interest in “smaller-form-factor tablets.” Those rivals could be forced to make adjustments, depending on where the iPad Mini’s price point lands.
Laura DiDio, principal analyst at research firm ITIC, told CNNMoney in a recent interview that a $249 iPad Mini is probably pricey enough that rivals could keep their 7-inch tablets at $199. But if Apple matches the $199 price point, Amazon — the most price-conscious competitor — could be forced to drop its Kindle Fire price by $50 or more.
“That could easily happen — we all know Apple is ruthless,” DiDio said. “And they have the deepest pockets in the industry.”
Not everyone is convinced that Apple should be jumping into the small-tablet market. Stock analysis firm Trefis questioned Apple’s motives in a research note last month, saying a tinier iPad “makes little sense now.”
The firm expressed serious concerns about both Apple’s profit margin and potential cannibalization of its other products. The only way Apple can make a profit on the iPad Mini is to price it between $299 and $349, Trefis thinks — and at that level, it’s close to the $399 price tag of the year-old iPad 2.
Wu, the Sterne Agee analyst, thinks that line of criticism misses the point.
“Apple wants to address a larger market, and they’ve always said they’re not afraid of cannibalizing their own products,” Wu said. “They’d rather eat their own business than let someone else do it.”