Apple Could Come Out with a Tweener Tablet to Counter the Kindle Fire

It seems Apple (NASDAQ:AAPL) is coming under intense pressure from the runaway success of Amazon’s (NASDAQ:AMZN) Kindle Fire tablet. The latest figures released by research firm IHS iSuppli revealed that Amazon’s Kindle Fire occupied around 14% of global tablet shipments in Q4 2011. ^[1] With reported shipments of 3.9 million units, Amazon certainly could not have asked for a better start to 2012.

According to a recent report from DigiTimes, Apple is likely to begin the production of 7.85 inch iPads in Q3 2012. ^[2] If Apple indeed does that, this could be to help ward off competition from Amazon’s 7 inch Kindle Fire. Our $550 price estimate for Apple stock is largely in line with the current market price.

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A smaller iPad might not be dead on arrival?

Interestingly, Apple’s Steve Jobs had famously once proclaimed that competitors’ 7 inch tablets are “Dead on Arrival”, citing that tablets should have a 10-inch screen at a minimum for an optimum user interface experience (see Do 7-Inch Tablets Stand a Chance?). Part of this stemmed from the fact that the 7-incher is a tweener — too big to be a smartphone and too small to be an effective tablet. If Apple indeed comes up with a 7 to 8 inch tablet, it will be a significant design change from the current 10 inch screen size of iPad.

Could Amazon launch a 9 inch Kindle Fire?

Amazon has started to capture the tablet market, as its strategy of selling low cost tablets seems to be working. However, the 7 inch Kindle Fire does not compete directly with 10 inch iPad. There was a rumor a few days back that Amazon could be working on a 9 inch tablet design to compete directly with Apple Read (A 9-Inch Kindle Fire Could Drag on iPad 3 Sales). We believe this move will put Amazon in more direct competition with the 10-inch screen iPad, and given the gap in its price point, Amazon could attract more buyers to its tablets and take some of the anticipated momentum from the iPad 3 launch.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Apple’s Toughest Competition in the Fourth-Quarter Tablet Market Was…Apple, iSuppli, 16th Feb 2012 [↩]
2. Apple likely to begin production of 7.85-inch iPads in 3Q12, say sources, DigiTimes, March 1st, 2012 [↩]