iPad Mini, Despite $199 Tablet Rivals, Will Dominate Holidays, Beyond

ANALYSIS: Apple's iPad mini was expected but its pricing was a surprise. Even starting $130 ahead of $199 rivals, analysts say the mini will "cement" Apple's tablet dominance.

Apple has sold 100 million iPads, and these devices now account for 91 percent of tablet traffic, Apple shared during an Oct. 23 event that it capped with the introduction of the iPad Mini. The Mini is the first iPad to break from the form factor that the late Steve Jobs introduced in 2010, reigniting a market and changing the industry.

With the iPad Mini, Apple is looking to shake up things again. Just as smartphone competitors have eaten into the iPhone's once-commanding shares of that market, tablet competitors want a larger slice of that pie, and they're going after it through pricing. This summer, Google, with help from Asus, introduced the $199 Nexus 7, and in September Amazon introduced the $199 Kindle Fire HD, calling it "the best high-end tablet anywhere, at any price."

While the industry expected the Mini's format, its price—and so the impact it was likely to have on the market—was an unknown. Google and Amazon break even on their tablets, if not lose dollars, anticipating a long-term return in software and content sales. But Apple needs to profit on its hardware.

A Baird Equity Research consumer survey found $249 to $299 to be the "starting sweet spot" for the Mini, and Jefferies analyst Peter Misek, in an Aug. 17 research note, forecast that Apple would sell 8 million iPad Minis at $300 during the fourth quarter.

Ultimately, Apple priced the device starting at $329. Too high?

Canaccord Genuity analyst Michael Walkley, in a research note following the event, wrote that he and colleagues were "impressed with both the features and pricing of the new iPad Mini," with which they expect "Apple will cement its dominant market share of the fast-growing tablet market, despite increased competition."

Walkley described the pricing as "discounted $170" from similar fourth-generation iPads and "competitively priced" versus the Google and Amazon tablets.

"We anticipate strong sales of the iPad Mini, especially as gifts during the holiday quarter," wrote Walkley. "Further, we believe the iPad Mini significantly expands Apple's tablet addressable market internationally and should lead to strong sales throughout [2013] as international distribution increases."

Canaccord expects Apple to sell 9.25 million iPad Mini tablets during the December quarter and 40 million units in 2013.

Jefferies analyst Misek, after some hands-on time with the Mini, wrote that his firm, too, believes the Mini "will be a top seller this Christmas."

Misek added, "We were particulary impressed with the Mini's Retina-like 8-inch screen and lightweight design," adding that Apple stressed that the 7.9-inch screen provides 35 percent more viewing area than the Google Nexus 7.

Jefferies expects Apple to sell a total of 26 million total iPads during the December quarter, versus the 16 million that Apple sold the quarter before.

Strategy Analytics analyst Peter King, who had also been expecting a $300 price point, says the extra $130 will be enough to sway some buyers toward the Nexus 7, the Kindle Fire family or even Barnes & Noble's $229 Nook HD. But it won't be enough buyers to hinder Apple's momentum.

"Yes, [Apple's competitors] will sell some, their aggressive pricing will definitely appeal to budget-restricted buyers and ensure that they do get some market traction," King wrote in an Oct. 23 blog post. "But given that the market leader, who has already sold 100 million iPads, has now entered the 7-inch area, the bar has been raised again for Google, Amazon and B&N."

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