Will the hottest thing about iPad 2 be the price?

Analyst predicts $100 price cut for next iPad

The general consensus is that iPad 2 will be improved but not revolutionary, adding either one or two cameras, possibly a faster processor, boosting RAM, and some other tweeks like making it thinner and so on. Or as former equities analyst Anton Wahlman puts it, "in the big scheme of things, nothing too exciting."

What is exciting, he writes, in a blogpost at TheStreet.com (and copied at Wahlman's own blog), is that Apple is now in a position to chop about $100 from the tablet's price tag.

The original iPad is available today in 6 configurations: 3 versions of the Wi-Fi only model, and 3 of the Wi-Fi-and-3G model, the versions varying with the amount of memory. The Wi-Fi iPads start at $499, for the 16Gbyte version, jump to $599 for 32Gbytes, and top out at $699 for one with 64Gbytes. Adding a 3G radio adds $130 to the price for each one.

The new iPad could well be priced starting at $399, topping out at about $699, according to Wahlman; and Apple could cut the price of the first generation iPad by $200, starting at $299 to clear out the inventory quickly, he suggests. (He emphasizes these are his own estimates, not based on any insider knowledge.)

What accounts for the cut? Wahlman points to the difference, then and now, for Apple's sales targets, and therefore, it's manufacturing targets. He estimates that Apple projected sales of 10 million first-generation iPads over 12 months, a target it easily surpassed. But with iPad 2, Apple " is probably looking to sell 60 million units worldwide starting this March."

That much higher volume gives Apple supply chain leverage. Wahlman: "When you go from planning under 10 million units to 60 million, you can negotiate much better manufacturing prices. Components can also be optimized for cost, to a different degree. Apple is pre-paying for critical parts, such as memory and displays, taking risk out of the contract manufacturers, which pressures the price down." 

If Apple makes those price cuts, the result will be a "nasty dilemma" for tablet rivals, including Motorola and Samsung, betting on Android-based devices, Research in Motion with its PlayBook, HP with its webOS tablet plans, and others, at least in 2011. Wahlman argues they won't be able to match Apple's volumes and therefore won't achieve lower costs, for some time; unless they penalize their gross margins.

Wahlman does not address the impact of lower iPad pricing on the laptop and netbook markets. But I looked at the pricing for these machines at Best Buy, which currently lists 87 Windows laptops in the "everyday laptop" category. A $399 iPad would be cheaper than all but 6 of those models, and the same price as just 5 of them. To put it differently, the iPad would be less expensive than 76 laptops in this class.

Best Buy currently lists 18 smaller netbook-class products on its Website. Five of them are priced at $399, Wahlman's iPad target. Five are pricier, topping out at $599 for a Lenovo model; and eight are less expensive, with a Gateway model grabbing the low point, at $529.

If you absolutely, positively need a laptop, then the low-priced iPad (how odd that sounds, given Apple's premium mindset) may not change your mind. But the iPad seems to be changing people's concept of what "need" means. For email, Web apps, Web services, social networking, business intelligence, and in future even some line-of-business apps iPad is all the computer that millions of people, including plenty of enterprise workers, are likely to need. And at $399, will be well able to afford.

So are you more excited by the prospect of the iPad's camera, or its price?

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Copyright © 2011 IDG Communications, Inc.

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