A few months back, Apple’s (NASDAQ:AAPL) Steve Jobs called competitors’ 7-inch tablets “Dead on Arrival”.  Naturally, tablet manufacturers are a bit more optimistic.  So who is right? Here we take a look a closer look at Jobs’ case. Challengers to Apple’s market share in the tablet space include Research in Motion (NASDAQ:RIMM), Motorola Mobility (NYSE:MMI), Samsung, Dell (NASDAQ:DELL) and LG.
We maintain a $420 price estimate for Apple stock, which is about 20% above market price.
A Look at Steve Jobs’ Comments
Steve Jobs took a shot at the usability of the 7-inch tablets, claiming that tablets should have a 10-inch screen at a minimum. Apple has performed extensive user-testing, he noted, to reach these conclusions.
According to Jobs:
“One naturally thinks that a seven-inch screen would offer 70% of the benefits of a 10-inch screen. Unfortunately, this is far from the truth. The screen measurements are diagonal, so that a seven-inch screen is only 45% as large as iPad’s 10-inch screen. You heard me right; just 45% as large…
… One could increase the resolution of the display to make up for some of the difference. It is meaningless, unless your tablet also includes sandpaper, so that the user can sand down their fingers to around one quarter of the present size. Apple’s done extensive user-testing on touch interfaces over many years, and we really understand this stuff. There are clear limits of how close you can physically place elements on a touch screen before users cannot reliably tap, flick or pinch them. This is one of the key reasons we think the 10-inch screen size is the minimum size required to create great tablet apps.” 
While some point to the increased mobility of the smaller tablets, Jobs also downplayed this advantage.
“Every tablet user is also a smartphone user. No tablet can compete with the mobility of a smartphone, its ease of fitting into your pocket or purse, its unobtrusiveness when used in a crowd. Given that all tablet users will already have a smartphone in their pockets, giving up precious display area to fit a tablet in our pockets is clearly the wrong tradeoff. The seven-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad.” 
What’s Your Take?
Steve Jobs does make a compelling argument, and we remain cautious regarding the potential for 7-inch tablets to really elbow their way into the market. However, if these tablets do become a real threat, it could present downside to our forecast for Apple’s iPad sales, as depicted in the chart above.
What’s your take? You can test your forecast for iPad unit sales, and examine the impact on Apple’s stock value, by dragging the trend line in the interactive chart above.Notes: