How Low Can the Price of an iPad Go? Just Wait

How cheap can ipads go?
How cheap can ipads go?

Apple (AAPL) will never tell you what I'm about to tell you: The iconic iPad tablet will be cheaper next year.

We're now just a couple of months away from the likely release of the iPad 3. Apple historically sticks to annual refreshes on its product lines. The original iPad came out in April of last year. The iPad 2 rolled out this past February. Let's split the difference and just say that the new iPad will hit the market in March.

Oh, Apple won't be telling you that either. It's in the tech giant's best interest to keep consumers guessing. The moment everyone knows that a newer -- and ideally better -- model is coming out, demand for the current model grows as cold as the sale of "Free Blagojevich" T-shirts.

The original iPad hit the market at price points between $499 and $829. The iPad 2 hit the market at the exact same price. Why should the third time be the charm?

Well, have you seen what's happening out there? It's raining tablets, my friend.

A Kindle Fire in Every Pot

If you're holding out for cheaper tablets, this is definitely your time to shop.

Consumers didn't have a lot of price points to work with during last year's holiday shopping season. You had the original iPad starting at $499. You had a handful of Android tablets starting at $499.

Last month treated gadgetry buffs to's (AMZN) Kindle Fire at $199. It's not perfect. It's smaller than the iPad. It lacks a camera and microphone. And several new complaints have been creeping up. (The "off" button is easy to accidentally hit, especially if you're holding the miniature tablet in landscape mode. The touchscreen isn't always responsive. There are no external volume controls. Parental controls and privacy settings are lacking.)

Still, analysts see Amazon selling between 3 million and 5 million units this season. Even if a lot of those Kindle Fires wind up getting returned by dissatisfied customers, Amazon will have enough tablets in the wild to become the market's undisputed silver medalist. When you're selling a tablet that's 60% cheaper than the market leader, most buyers will overlook the shortcomings.

Can you imagine how cheap the refurbished Kindle Fires will be if Amazon has to deal with heavy returns?

Tablets Cheap Enough for Stocking Stuffers

It's not just Amazon that's altering the value perception of tablets. Barnes & Noble (BKS) launched the Nook Tablet at $249 just days after the Kindle Fire hit the market.

Clearing out its TouchPad tablets, Hewlett-Packard (HPQ) was liquidating its inventory of Palm webOS-powered tablets at prices as low as $99. Research In Motion (RIMM) struggled to move its PlayBooks at iPad-like prices, so it's been offering them through some retail channels for substantially less.

Last year, iPad rivals tried to beat Apple by packing superior specs on their devices. They failed. This year finds iPad competitors trying to make a dent on price. They are succeeding.

A couple of analysts have already been scaling back their projections for iPad 2 unit sales this quarter. Apple will still outsell Amazon on a 3-to-1 basis, but it's clear that the proliferation of cheap tablets is making an impact.
A year ago, analysts were surprised that Apple was introducing its tablet at an aggressive $499 price point. These days, Apple's sticker is just too high.

The Easiest Path to a $299 or $399 iPad

Those who feel that Apple will enhance its product line with its springtime refresh by tacking on new features and finding a way to offer it at a substantially lower price will be out of luck. Apple did go through a pair of early price cuts when it first introduced the iPhone, but $499 seems to be a good place to be for shiny new iPads.

However, who says that the iPad 2 is going to die? What's stopping Apple from introducing the iPad 3 in a couple of months but also announcing that it will continue to offer the entry-level iPad 2 at a $349 or $399 price point?

It's not as if this is without precedent. This is essentially what Apple is doing now with its iPhones. It rolls out a new model at the old price but marks down the price of the older model to make it more accessible. We're now at the point where Apple's wireless carriers can offer you an older iPhone 4 at $99 or an iPhone 3GS for free with a two-year contract.

How can Apple not do this with the iPad, now when it's actually vulnerable -- the way its iPhone business has become susceptible to the growing popularity of Google's (GOOG) Android in the smartphone space?

Again, Apple will be the last one to tell you this. It doesn't want holiday shoppers to refuse paying $499 for a tablet that will have a 20% price cut in a few months.

I have no problem calling for cheaper iPads -- likely iPad 2 models when the iPad 3 is introduced -- but I'm only speculating out loud. Am I right?

Prove me wrong, Apple.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article except for HP, though he does own a Kindle Fire and an iPad. The Motley Fool owns shares of, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Google,, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.

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