Apple Tablet Could Shake Up Netbook Market, Analysts Say

Apple could roll out a tablet PC in early 2010, according to a new research note by Piper Jaffray. The Apple tablet PC would be cheaper than a MacBook but still more expensive than the mininotebooks or netbooks that are currently dominating sales on the lower end of the PC market. Despite that higher price point, Piper Jaffray sees an Apple tablet PC as a challenging competitor in the netbook market, as well for mobile devices from companies such as Amazon.com.

As rumors of an Apple tablet PC reach a fever pitch, a new research note by Piper Jaffray suggests that any such device would be a significant revenue generator and drastically affect the market for mininotebooks, also known as netbooks.

The Aug. 7 report, written by analyst Gene Munster along with analysts Michael Olson and Andrew Murphy, predicts that Apple will roll out "a touch-screen device similar to an iPod Touch but larger."

The report stated, "We spoke with an Asian component supplier that has received orders from Apple for a touch-screen device to be fulfilled by late [2009]. This data point underscores our thesis that a tablet will likely launch in early [2010]."

Piper Jaffray has been steadily beating the drum for months about the prospect of an ultraportable Apple tablet PC. In May, the research company issued a report suggesting that the tablet would feature a 7- to 10-inch screen and retail for between $500 and $700, effectively filling a strategic gap for Apple between the iPod Touch and its low-end Mac desktops.

The Aug. 7 report reiterates those points, and suggests, "Apple will target the netbook market with its new device."

Munster wrote, "We believe an Apple tablet would be priced 30 to 50 percent below the $999 MacBook, and would offer best-in-class Web, e-mail and media software. In other words, we believe Apple's tablet would compete well in the netbook category even though it would not be a netbook."

For months, Apple seemed quick to discourage speculation that it would leap into the netbook end of the PC market, despite such devices' burgeoning popularity due to their low cost and portability.

During the company's July 21 earnings call, Apple Chief Operating Officer Tim Cook took some time to dismiss netbooks during a question-and-answer session, saying, "At this point we don't see a way to build a great product for $399 [or] $499. As I've said before, I think some customers-maybe many customers-become disappointed and disenchanted after buying [netbooks]."

But when pressed by an analyst, Cook also refused to dismiss tablet PC rumors.

"I never want to discount anything in the future and never want to specifically answer a question on new products," he said.

The report by Munster suggests that a tablet PC could make a significant contribution to Apple's bottom line in 2010. "While at first glance this may appear to address a niche market," Munster wrote, "we believe the addressable market is larger than that of the Apple TV, of which Apple sold about [1.2 million] in its first year."

He added, "We estimate that Apple could sell about 2 [million] tablets" in 2010, which at $600 per unit would add up to around $1.2 billion in revenue for the year.

To put those numbers in perspective, Apple's most recent quarterly profit was $1.23 billion, a year-over-year rise of 12 percent, on top of total revenues of $8.34 billion. Much of that revenue was generated by sales of iPhones and iPods, mobile devices that either fully embrace or are gradually adopting the touch-screen technology that would be utilized in an Apple tablet. Apple's quarterly iPod sales declined around 7 percent, to 10.2 million units sold, as part of what the company claims is a deliberate cannibalization of the traditional iPod market by the iPod Touch.

Munster suggested that an Apple tablet's operating system will resemble either the iPhone OS, with multitasking capability and applications designed specifically for a device with a larger screen, or else a multitouch-enabled version of Mac OS X. However, he wrote, "We expect Apple to build on the multitouch technology built into the iPhone and iPod Touch along with the App Store ecosystem, with an OS more comparable to the iPhone's, not the Mac's."

Apple may also integrate a mobile data feature such as 3G wireless into the device, and could even subsidize the device through a wireless carrier, Munster added. He cited the trend toward subsidized netbooks, for example Verizon's partnership with Hewlett-Packard to carry the HP Mini 1151NR. The Apple tablet could also challenge Amazon.com's Kindle e-reader if Apple accompanies the device with a push to sell digital books through the iTunes store.