Tuesday, November 15, 2011

iPad demand fading as competition heats up: Goldman Sachs

Goldman Sachs analyst Bill Shope believes Apple's tablet is finally beginning to see some competition, and that Apple will need to address "near-term demand challenges." One of those challenges might be Amazon.com's Kindle Fire, which is just now launching into customers' hands.

In the report, Shope attributed pressure on Apples tablet to growing pains, as "iPad has ramped much faster than the iPhone, or the iPod, with almost zero catalysts to drive growth."

A price cut is overdue, Shope said, though not necessarily a cut to the current low-end model, although that is possible. Instead, Apple could offer a lower-end model. He said,

"... an outright price cut at the low end and the possible introduction of a low-capacity iPad 2 line once the iPad 3 is released could stimulate demand considerably without any substantial margin compression. In fact, a sub- $400 iPad 2 with 8Gb of capacity could further limit the competitive prospects of Android tablet vendors in 2012 and attract more cost-sensitive consumers amid the currently depressed macroeconomic environment."

In other words, it's tough to sell a $500 device in this economy (and that's the lowest-priced iPad).

That said, Shope has not changed his estimates for quarter's iPad 2 sales, and he is also expecting record iPhone sales of 30.3 million devices, a 77 percent increase jump over Apple's fiscal Q4, calendar year Q3 2011 results.

There have been rumors since the first iPad was introduced that Apple might launch a smaller, 7-inch model, but Steve Jobs' famous rant that tablets with sub-10-inch screens were "DOA" seemed to put an end to that. With Tim Cook now in charge, the 7-inch model might see the light of day.

That could be, as Apple's "normal" annual refresh cycle would mean a March 2012 refresh of the iPad with an iPad 3, but some recent rumors have pointed to a 7-inch tablet that will be very similar to the current iPad 2, but with a lower price point (around $300), with perhaps a lower storage tier.

If Apple did that, the company would then launch of a full-sized "iPad 3" with a Retina Display later in 2012.

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