A Smaller iPad Should Help Apple Grab a Bigger Tablet Pie
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s been almost a month since Apple (NASDAQ: AAPL) took the covers off the iPhone 5. Ever since Apple started selling the latest iteration of the iPhone on September 21, its stock price has fallen almost 10% (as of this writing). We have seen many analysts predict that Apple’s days of supersonic growth are numbered as it is not innovating enough and the latest iPhone is nothing revolutionary.
But, as I had said earlier, the fate of the iPhone 5 shouldn’t be gauged on a short-term basis, especially considering that it has already upstaged the iPhone 4S as far as initial sales are concerned and we still have the holiday quarter ahead of us. However, haters will hate and Apple shareholders are currently feeling the pinch as the iPhone tries to emerge out of a vicious cloud of negativity.
While the exact success of the iPhone can be known when the company releases its December quarter report early next year, it seems Apple has armored itself with another product and expects it to sell in millions.
Q: Where Would you Like to Begin, Apple? A: How About 10 Million
According to The Wall Street Journal, Apple is preparing a war chest of 10 million iPad Minis/Nanos (or whatever name Apple decides), the Cupertino-based behemoth’s attempt at a tablet in a smaller form factor. Now, this figure is seriously impressive, especially considering that Amazon.com (NASDAQ: AMZN) had placed half the orders of what Apple has purportedly placed, if we are to believe WSJ.
In addition, the number of units ordered puts the expected 8 million units that Google’s (NASDAQ: GOOG) Nexus 7 might sell this year to shame. But the immediate question that pops up in my mind is – why did Apple possibly order 10 million units of a smaller iPad even though it is venturing for the first time in the small tablet segment? After all, the company had sold 17 million units of the new iPad in the second quarter according to IDC, and 10 million for a new, smaller iPad seems to be a lofty target since the 9.7-inch iPad is now a matured product.
But Why 10 Million?
There could be two reasons behind this huge number of orders – 1. Apple doesn’t want to goof up again on the supply side like it happened in the case of the iPhone, and 2. It expects the smaller iPad to blow away other 7 inch tablets.
Point number 1 doesn’t need much explanation, as Apple will need to be ready with a good number of smaller iPads if it has to meet the holiday period demand. And this is really important, as the 7-inch tablet category is a highly competitive one and consumers have the luxury of looking at Amazon’s Kindle Fire HD or the Nexus 7 if the smaller iPad isn’t readily available.
As far as point 2 is concerned, it seems to be the more realistic reason to me. Firstly, I expect the smaller iPad to benefit largely from the supremacy of its bigger brother. The 9.7-inch iPad is the undisputed ruler of the tablet market with a 68.2% share. It is a proven product and has met with stupendous success ever since it was released. Hence, a smaller iPad might just replicate the success of the bigger one and go on to capture the 7-inch segment.
A Bigger Share of Smaller Tablets
Next, the 7-inch tablet segment is a growing at a fast clip. According to IHS iSuppli, shipments of smaller tablets are expected to double this year to 41 million units, accounting for around 32% of the tablet market. So, it seems that Apple has correctly decided to enter the fray with a smaller tablet as consumers are expected to give some more love to the 7-inch tablet category.
The 7-inch tablet has found more takers ever since Amazon released the Kindle Fire last year at a $199 price point, and it became the best selling tablet after the iPad. Amazon refreshed the tablet this year with the Kindle Fire HD but it seems that the tablet has not got off to a great start. A study by Chitika Insights reveals that the Fire HD is finding it difficult to cope with the success of the Nexus 7, which means that Apple will be directly up against Google once again.
Late in June, after the Nexus 7 was announced, I had said that Google’s tablet would give stiff competition to the Kindle Fire. My assumption was based upon the fact that the Nexus 7 had superior specs at the same price point and should deliver a better experience to end-users. And the tablet seems to have done pretty well for itself ever since.
But Apple is known to deliver a better experience than Android-powered tablets, a fact that has been proven time and again by the iPad’s supremacy. Hence, I won’t be surprised to see the trickle-down effect of the bigger iPad on the smaller one and drive sales. Moreover, a rumored price point of $299 for the 16 GB version seems to be good enough for a 7+ inch Apple tablet.
Looking Beyond the Cannibalization Concern
However, there’s one concern. It might be possible that a smaller iPad might cannibalize the sales of its big brother. This is a genuine concern, but I would rather look at the positive aspect. The 9.7-inch iPad and the smaller iPad would be two distinct products, with distinct features. A combination of a smaller and a bigger tablet would cater to the demands of a larger set of customers and help Apple’s position further in the tablet market.
Amazon had a 5% share of the tablet market in the second quarter, while ASUS had 3.4% and the “Others” category had 12.3%, according to IDC. Now, a smaller iPad would probably bring together consumers who have been using other smaller brands and enable Apple to improve further on the tablet market share it currently holds.
Thus, the iPad brothers can together be quite beneficial for Apple as a whole. The last thing I would want to see is that analysts are beating up Apple for releasing a smaller iPad as it might hurt the original iPad’s sales.
The Bottom Line
Apple might have endured a difficult past few days but its prospects are still good if we try and be a bit forward looking. Negative opinions about the iPhone do not matter at all, what matters is the number of units sold, and the iPhone 5 has passed its first test by having a better opening than its predecessor. With the impending arrival of a smaller version of the iPad, Apple investors can expect the company to break more records going forward.
I am looking forward to a tremendous holiday quarter for the company, and had told you why you should consider buying Apple and a few of its component suppliers before they take off. And when the iPad Mini materializes, there will be another good reason to get more of Apple while it’s in correction mode.
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TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. 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.If you have questions about this post or the Fool’s blog network, click here for information.