Here's How the iPad Extinguishes the Kindle Fire In One Week

We are now T-minus six days until iPad 3 Day next Wednesday, which means our timeframe for last-minute rumors on what possible surprises Apple (NAS: AAPL) may have up its iSleeve is quickly counting down.

The usual suspect
Never one to disappoint, Digitimes is out with a new report today with some more supply chain rumblings from the Far East on what to expect. In standard Digitimes fashion, take with six handfuls of salt and expect about 50% accuracy.

The publication's sources point to Apple launching only two iPad 3 models -- a 16 GB version and a 32 GB version -- which makes no sense. The higher-storage models carry the juiciest margins, so there's no reason to expect Cupertino to ditch the lucrative 64 GB model anytime soon. If anything, Apple has been moving to even higher capacities (and margins) lately, with the iPhone 4S recently getting 64 GB of storage, and I think Apple will eventually have a 128 GB iPad (but probably not this year).

A separate Digitimes report says Apple may be facing some supply constraints for its Retina Displays, which is believable, but even then I would still expect Apple to spread out production to include higher end models.

Where's the beef?
Here's the real meat of the report though: the report claims that Apple will unveil an 8 GB iPad 2 entry-level model. This is where the plot thickens, because this speculation checks out with Apple's practice of reducing storage on older models to tackle lower price points. It did this with the iPhone 3GS and iPhone 4 over the past two years.

Some type of iPad price cut seems inevitable, and this would be a killer move. Let's say that Apple moves the current entry-level 16 GB iPad 2 down to the $399 spot once the new iPad 3 takes the $499 place. If Cupertino puts an 8 GB iPad 2 at either $299 or $349, that would aggressively target some would-be Amazon.com (NAS: AMZN) Kindle Fire buyers.

It would also inevitably take a bite out of some Barnes & Noble (NYS: BKS) Nook Tablet shoppers too, just as B&N introduced an 8 GB model of its Nook Tablet at $199 to directly take on the Kindle Fire.

Consider this potential lineup against the competition.

Product Storage Display Price
Kindle Fire 8 GB 7-inch $199
Nook Tablet 8 GB 7-inch $199
  16 GB 7-inch $249
iPod Touch 8 GB 3.5-inch Retina Display $199
  32 GB 3.5-inch Retina Display $299
  64 GB 3.5-inch Retina Display $399
iPad 2 8 GB 9.7-inch $299*
  16 GB 9.7-inch $399*
iPad 3 16 GB 9.7-inch Retina Display $499*
  32 GB 9.7-inch Retina Display $599*
  64 GB 9.7-inch Retina Display $699*

Source: Amazon.com, BN.com, Apple.com. *estimated.

If Apple were to go for the jugular with a $299 iPad 2, the Kindle Fire and Nook Tablet should be shaking in their plastic body casings. Such an aggressive pricing move would knock down the Fire and Nook just as they were gaining momentum, and potentially jump the gun on an official Google (NAS: GOOG) Nexus Android Tablet, which is rumored to begin production next month with a price potentially as low as $199.

The best defense is a good $299 iPad 2
It's no stretch to say that Apple already owns the tablet market. iSuppli's estimates show that Apple's market share slipped from 63.8% to 56.9% in the fourth quarter, partially due to the Fire and Nook gaining traction. A $299 iPad 2 would trounce those sales and reinvigorate the Mac maker's already overpowering lead in the tablet market.

On top of that, Digitimes believes that the lower model would be intended to also play defense against the upcoming slew of Microsoft (NAS: MSFT) Windows 8 tablets that are due out later this year. Microsoft is now ramping up the OS, with a Consumer Preview released just yesterday at Mobile World Congress.

Let the countdown begin
The good news is that we won't have to wait too long. Apple has gotten very aggressive with pricing strategy over the past few years. Cupertino wowed the market with the original iPad's pricing at $499, while most analysts at the time were expecting the then-unnamed tablet to retail for between $800 and $1000. Ultrabooks are also having trouble competing with the MacBook Air's aggressive price points.

In all likelihood, though, Apple may end up pricing the 8 GB iPad 2 at $399 and eliminate the 16 GB second-generation model like it has done with iPhones in the past -- but a Fool can dream, can't he? Just for the record, if we see a $299 iPad 2 next week, you heard it here first.

Wow us again, Apple. The Kindle Fire is toast.

The iPad has started a revolution, but Apple is hardly the only winner. Some of the winners are hard to see because they're buried deep inside the gadgets. Check out this new special free report on "3 Hidden Winners of the iPhone, iPad, and Android Revolution" that names a handful of companies that provide the crucial components that these gadgets rely on. It's free.

At the time this article was published Fool contributor Evan Niu has already decided to buy an iPad 3. He owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, Google, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Apple, Google, Amazon.com, and Microsoft; creating a bull call spread position in Apple; and creating a bull call spread position in Microsoft. 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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Attikai

I think what the author seems to be missing is that the devices are different sizes. I have a Kindle Fire because it's a 7" tablet. I didn't want a tablet that would not fit in my pocket, or one that was too big to read books on. I may end up getting a larger format tablet such as the iPad in the future for other purposes than the pocket sized Kindle Fire. But even if I did I would not be getting rid of my 7" tablet.

March 02 2012 at 6:40 PM Report abuse rate up rate down Reply
Bean Cube

Amazon should go into another round of aggressive pricing to hold the ground for wider distribution of their released devices so to finance their upcoming device for a more full-fledge packages and their maturely strong back end. They must keep their customers active and allow direct aids to publishing industrialists in those customers at this point now.

March 02 2012 at 12:34 AM Report abuse rate up rate down Reply
Bean Cube

Amazon should go into another round of aggressive pricing to hold the ground for wider distribution of their released devices so to finance their upcoming device for a more full-fledge packages and their maturely strong back end. They must keep their customers active and allow direct aids to publishing industrialists in those customers at this point now.

March 01 2012 at 11:35 PM Report abuse rate up rate down Reply