Apple Inc. (Nasdaq:AAPL) is the company to beat right now in the technology sector, that much is clear. For the past few years, the Cupertino-based firm has demonstrated incredible growth in sales revenue and market capitalization. Much of that success was driven by the success of the iPad, one of Apple's major product lines. However, tablets released by Google (Nasdaq:GOOG) and Amazon (Nasdaq:AMZN) (and soon Microsoft (Nasdaq:MSFT)) continue to chip away at Apple's market share. Apple's response to these more affordable options is the iPad Mini.
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In the technology sector, the balance of power can shift remarkably quickly. As reported in Q3 of 2008, Nokia (NYSE:NOK) held the majority of smartphone market share with a 42.4% rating. By the end of Q2 in 2012, Nokia's piece of the pie had fallen to a mere 4.4%, with Google's Android dominating at a 68% market share. Accordingly, competition in the sector is vicious; massive lawsuits over patent infringements have become its hallmark, spurring companies to gobble up as many patents as they can. For Apple to avoid playing the role of "Nokia" in the tablet arena, it must continue to improve its current product lines and innovate in order to create new ones.
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In 2011, 81% of tablet owners had an iPad. One year later, Apple's tablet market share had plummeted to 52%. Apple's competitive edge was ebbing to a combined assault by Samsung's Galaxy Tab, Amazon's Kindle Fire, Barnes and Noble's (NYSE:BKS) Nook and Google's Nexus 7. All of these products offer similar specifications at a more reasonable price range. Refusing to surrender the bottom half of the market, Apple's elixir is the iPad Mini.
According to multiple sources, the iPad Mini will have a 7.85-inch display with a faster processor, front and rear cameras, and the new lightning dock connector. Combine that with a more attractive price point between $200 and $300, and Apple will have finally had a horse in the lower-end of the tablet race. In comparison, Apple's current iPad begins to sell at $499.
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The iPad Mini is expected to be a smashing success. According to analysts at Piper Jaffray, initial sales of the iPad Mini in 4Q 2012 could be 5 million units, but at the price of 1 million current iPads. Even so, Apple would much rather have customers stick with the firm than switch to a rival's tablet line.
The iPad Mini comes at a critical time. Tablet usage in the U.S. has risen dramatically in the last year: from 11% of American households in July 2011, to 25% in August 2012. Apple's current iPad model is appealing to the upper market echelon, but families seeking more bang for their bucks are looking elsewhere. Thus, creating a product line catering to this consumer group is an extremely intelligent play on Apple's part. The real question is whether Apple will go for the kill; accepting a lower margin per unit would be sure to give its competition a hard time.
The Bottom Line
Apple's iPad Mini is not a concession to its competitors, but rather a challenge. Engineering the iPad Mini is a move that is sure to drive its market share and claim prospective tablet owners. Much is uncertain; Apple's growth as a company has slowed from its record-setting pace in previous quarters. A strong showing from the iPad Mini is just what the company needs to maintain its status as the most successful company in the world.
At the time of writing, James Kerin did not own any shares in any company mentioned in this article.