Amazon Take Note of HP’s Tablet Lesson: Aggressive Pricing Works
Apple’s (NASDAQ:AAPL) dominance in tablet market is so entrenched now that rivals are resorting to aggressive pricing strategies to counter the iPad. Last week, HP’s (NYSE:HPQ) TouchPad tablet went from commercial flop to instant hit when the company slashed the price to $99 from $399. Consumers flocked to grab these tablet prompting the company to do one more production run to keep customers happy despite losing money on those produced.
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Earlier this week, Forrester research suggested that Amazon (NASDAQ:AMZN) could sell as many as 5 million tablets in Q4 this year by undercutting iPad’s price drastically. [1] One thing to note is that similarly priced tablets from competitors’ Research in Motion’s (NASDAQ:RIMM), Motorola Mobility (NYSE:MMI) and HP have all failed to take meaningful market share in the tablet market as Apple’s iPad dominates the market still though they didn’t cut prices as aggressively as Amazon might. Competitors have realized that undercutting iPad’s pricing may be one of the only options for them.
What’s the potential impact?
If we believe Forrester Research’s premise that Amazon will be able to sell as many as 5 million tablets in the very first quarter, that could take some market share way from Apple. Though we have factored in greater competition in our Apple forecast, aggressive promotional activities might alter this playing field somewhat.
We estimate Apple will sell 37 million iPads this year and 55 million next year. This annual growth of 50% is conservative, especially when we consider that Apple iPad showed 250% unit sales growth in Q2 this year compared to the same quarter last year. [2]
Moreover, iPad accounts for only around 12% of our $510 price estimate for Apple stock, which means that any slowdown in iPad’s sales should not have much impact on Apple’s stock value. Investors should note that our price estimate for Apple stock is about 30% above market price.
See our complete analysis for Apple stock here
Notes:- Amazon may sell 3-5 million tablets in Q4: Forrester, Reuters, August 29th, 2011 [↩]
- Data available in Apple SEC filings [↩]