Here's How the iPad Extinguishes the Kindle Fire In One Week

We are now T-minus six days until iPad 3 Day next Wednesday, which means our timeframe for last-minute rumors on what possible surprises Apple (NAS: AAPL) may have up its iSleeve is quickly counting down.

The usual suspect
Never one to disappoint, Digitimes is out with a new report today with some more supply chain rumblings from the Far East on what to expect. In standard Digitimes fashion, take with six handfuls of salt and expect about 50% accuracy.

The publication's sources point to Apple launching only two iPad 3 models -- a 16 GB version and a 32 GB version -- which makes no sense. The higher-storage models carry the juiciest margins, so there's no reason to expect Cupertino to ditch the lucrative 64 GB model anytime soon. If anything, Apple has been moving to even higher capacities (and margins) lately, with the iPhone 4S recently getting 64 GB of storage, and I think Apple will eventually have a 128 GB iPad (but probably not this year).

A separate Digitimes report says Apple may be facing some supply constraints for its Retina Displays, which is believable, but even then I would still expect Apple to spread out production to include higher end models.

Where's the beef?
Here's the real meat of the report though: the report claims that Apple will unveil an 8 GB iPad 2 entry-level model. This is where the plot thickens, because this speculation checks out with Apple's practice of reducing storage on older models to tackle lower price points. It did this with the iPhone 3GS and iPhone 4 over the past two years.

Some type of iPad price cut seems inevitable, and this would be a killer move. Let's say that Apple moves the current entry-level 16 GB iPad 2 down to the $399 spot once the new iPad 3 takes the $499 place. If Cupertino puts an 8 GB iPad 2 at either $299 or $349, that would aggressively target some would-be Amazon.com (NAS: AMZN) Kindle Fire buyers.

It would also inevitably take a bite out of some Barnes & Noble (NYS: BKS) Nook Tablet shoppers too, just as B&N introduced an 8 GB model of its Nook Tablet at $199 to directly take on the Kindle Fire.

Consider this potential lineup against the competition.

Source: Amazon.com, BN.com, Apple.com. *estimated.

If Apple were to go for the jugular with a $299 iPad 2, the Kindle Fire and Nook Tablet should be shaking in their plastic body casings. Such an aggressive pricing move would knock down the Fire and Nook just as they were gaining momentum, and potentially jump the gun on an official Google (NAS: GOOG) Nexus Android Tablet, which is rumored to begin production next month with a price potentially as low as $199.

The best defense is a good $299 iPad 2
It's no stretch to say that Apple already owns the tablet market. iSuppli's estimates show that Apple's market share slipped from 63.8% to 56.9% in the fourth quarter, partially due to the Fire and Nook gaining traction. A $299 iPad 2 would trounce those sales and reinvigorate the Mac maker's already overpowering lead in the tablet market.

On top of that, Digitimes believes that the lower model would be intended to also play defense against the upcoming slew of Microsoft (NAS: MSFT) Windows 8 tablets that are due out later this year. Microsoft is now ramping up the OS, with a Consumer Preview released just yesterday at Mobile World Congress.

Let the countdown begin
The good news is that we won't have to wait too long. Apple has gotten very aggressive with pricing strategy over the past few years. Cupertino wowed the market with the original iPad's pricing at $499, while most analysts at the time were expecting the then-unnamed tablet to retail for between $800 and $1000. Ultrabooks are also having trouble competing with the MacBook Air's aggressive price points.

In all likelihood, though, Apple may end up pricing the 8 GB iPad 2 at $399 and eliminate the 16 GB second-generation model like it has done with iPhones in the past -- but a Fool can dream, can't he? Just for the record, if we see a $299 iPad 2 next week, you heard it here first.

Wow us again, Apple. The Kindle Fire is toast.

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At the time thisarticle was published Fool contributorEvan Niuhas already decided to buy an iPad 3. He owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, Google, and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Apple, Google, Amazon.com, and Microsoft; creating a bull call spread position in Apple; and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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