iPad Average Price Could Increase as Telcos Sell More 3G Tablets
As the iPad begins to face increased competition in the tablet market, Apple (NASDAQ: AAPL) may be able to offset the resulting pricing pressure by stepping up sales of its 3G-enabled devices. While many consumers still prefer the cheaper wi-fi tablets, according to AT&T (NYSE:T) the ubiquitous coverage of 3G-enabled devices is appealing to more and more users. AT&T’s Glenn Lurie stated that the majority of customers who buy tablets from AT&T purchase 3G tablets and activate the service. [1] While most people buying tablets from a carrier (as opposed to a retailer or OEM) will buy the cellular models, the fact that so many are activating the service and using it regularly may lead OEMs to focus more on selling their 3G tablets which carry a higher average price.
Apple dominates the tablet market
Apple’s iPad dominates the tablet market with a market share that could reach 61% globally in 2011, according to a report from DigiTimes. [2] Competitors in the market include Samsung, Research in Motion (NASDAQ:RIMM) and Motorola Mobility (NYSE:MMI) among others. The iPad accounts for around 12% of our $510 price estimate for Apple’s stock, which is about 30% above the current market price.
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iPad average pricing to decline in future
We expect the iPad’s average pricing to decline in the future as competition from lower cost vendors such as Amazon (NASDAQ:AMZN) and the expansion into price-sensitive emerging markets could force it to reduce pricing (see Amazon Take Note of HP’s Tablet Lesson: Aggressive Pricing Works). The lowest memory iPad with wi-fi sells for a price of $499, and the starting price for the 3G iPad is $130 higher. [3] The average price of the iPad was $622 in 2010, and we expect that to remain constant in 2011.
Wi-fi tablets still preferred…
Not only are wi-fi tablets cheaper, but also the growing number of wi-fi hotspots allows for coverage that can compete with the 3G versions. According to market research firm In-Stat, total Wi-fi hotspot venues are expected to exceed 1 million in 2013. [4] According to a finding from ABI Research, only 25% of iPads shipped in Q1 2011 featured support for 3G connectivity. [5]
… but the growing appeal of 3G could benefit OEMs
According to AT&T’s Lurie, “Customers tell us that they buy a device with 3G just in case they need it. But once they need it, they never want to go without it again.” [1]
If this appeal continues to grow, which we think is likely given that 4G-enabled tablets will soon hit the market, it would benefit OEMs such as Apple by increasing average pricing on tablets.
You can tweak the above chart yourself to understand the sensitivity of this driver on Apple’s stock value.
See our complete analysis for Apple stock here
Notes:- AT&T’s Lurie: Majority of Tablet Customers Activate 3G Connectivity, FierceWireless, September 13, 2011 [↩] [↩]
- Apple iPad to account for 61% share of global tablet market in 2011, DigiTimes, August 4th, 2011 [↩]
- Apple iPad pricing list, Apple website [↩]
- Hotspot Usage to Reach 120 Billion Connects by 2015, In-Stat, August 29, 2011 [↩]
- ABI: 25% of iPads sport 3G connections, slightly below industry average, FierceWireless, June 30th, 2011 [↩]