Bloomberg News

Apple Unveils Smaller IPad to Boost Tablet Rivalry

October 23, 2012

Apple iPad Mini

Phil Schiller, Apple's senior vice president of worldwide product marketing, introduces the iPad Mini in San Jose, Calif., on Oct. 23, 2012. Photographer: Marcio Jose Sanchez

Apple Inc. (AAPL:US) Chief Executive Officer Tim Cook introduced a smaller, cheaper version of the iPad designed to keep customers from buying low-cost tablets from competitors Microsoft Corp. (MSFT:US), Amazon.com Inc. (AMZN:US) and Google Inc. (GOOG:US)

The iPad mini boasts a 7.9-inch screen diagonally, compared with the 9.7-inch screen of the iPad, which was also upgraded today. It’s also thinner and lighter, and costs $329 to $659. Shares of Apple, the world’s most valuable company, fell on concern the price isn’t low enough to draw users from rivals like Amazon’s Kindle and Barnes & Noble Inc. (BKS:US)’s Nook.

Cook is seeking to widen Apple’s lead in the tablet market, which NPD DisplaySearch predicts will more than double to $162 billion in the next five years. By broadening the iPad lineup, Cupertino, California-based Apple aims to add to its 70 percent market share just as Microsoft introduces its own device, and Google and Amazon upgrade their own handheld lines.

“Competitors are probably breathing a sigh of relief with $329,” Chris Jones, an analyst at Canalys, said of Apple’s iPad Mini price. “They are still going to sell a ton.”

While a lower price point would have crushed competitors, it also would have harmed Apple’s industry-leading profit margins, he said.

“That would have impacted their margins so they had to strike a balance,” Jones said. “The competitors with $199 prices may still find their place in the market.”

Apple shares fell 3.3 percent to $613.36 at the close in New York. The iPad mini comes at a critical time for Apple, which has has dropped 13 percent since reaching a record on Sept. 19, two days before the company released the iPhone 5.

Multigadget Strategy

Apple has sold more than 100 million iPads since co-founder Steve Jobs introduced the device in January 2010, creating a market among consumers, businesses and schools seeking a gadget that blends features of a laptop with the mobility of a handheld phone. By adding another model at a different price, Apple is mimicking the multigadget strategy it used to make iPod the top- selling media player.

“We believe it will be a hit product given its lower price point,” Shaw Wu, an analyst at Sterne Agee & Leach Inc., wrote in an e-mail. “The pricing is in line with what we thought, but may be higher than some who were hoping for more aggressive pricing.”

The new tablet is thinner at 7.2 millimeters, weighs 0.68 pounds, about half of the weight of the iPad, and has a battery life of 10 hours. Apple said it will start taking orders for the iPad mini on Oct. 26 and the Wi-Fi models will start shipping Nov. 2.

Other Upgrades

The fourth generation of the iPad, first introduced in 2010, was also unveiled with a faster chip, improved network connectivity and a slot that works with Apple’s new Lightning connector.

Apple also introduced upgrades across its computer product line, adding a redesigned iMac desktop with a thinner profile, a more powerful Mac mini and a 13-inch notebook that boasts a high-definition display.

With the debut of a smaller iPad, Apple will help double the size of the market for 7-inch tablets this year, to about 34 million units, according to a report from IHS ISuppli.

Apple may sell 5 million to 7 million of the smaller iPads by the end of the year, according to Brian White, an analyst at Topeka Capital Markets.

Wider Appeal

Aside from price, another advantage for Apple is the connection to the iTunes music store and the App Store, which features more than 275,000 tablet-friendly applications.

A smaller iPad may attract customers who want a computing device that’s easier to use on the go, said Sarah Rotman Epps, an analyst at Forrester Research. (FORR:US) She estimates that about half of the time people spend with a tablet is in the living room or bedroom.

“It could be that a smaller, lighter iPad will be more portable and will appeal to a wider segment of customers,” Epps said in an interview.

Introducing a smaller iPad is a reversal for Apple. Before his death last year, Jobs had said customers wouldn’t like having less screen space.

“This size isn’t sufficient to create great tablet apps, in our opinion,” Jobs said in 2010 of 7-inch tablets.

Documents released earlier this year as part of Apple’s patent lawsuit against Samsung Electronics Co. included an e- mail from Apple Senior Vice President Eddy Cue discussing efforts to convince Jobs of the need for a smaller tablet.

Apple’s introduction of a smaller iPad is one of several events in the coming week as companies look to get new wares on store shelves before the holiday shopping season. Microsoft is introducing its newest Windows operating system, along withits own Surface tablet, on Oct. 26, and Google is due to unveil a new version of its Android software for mobile devices before the end of the month.

“We know we are just getting started,” Cook told the audience. “We are not taking our foot off the gas.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $100.96 USD
    • -0.83
    • -0.82%
  • MSFT
    (Microsoft Corp)
    • $47.52 USD
    • 0.84
    • 1.77%
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