3 New Reasons Apple Will Scorch Its Rivals This Year
Now that the new iPad is here and everyone and his brother is salivating to buy one, there is much talk about how Apple (NAS: AAPL) dominates the tablet market. A recent survey by InMobi showed that almost 30% of those responding were planning to buy the new iPad, and that more than half of those people didn't already own a tablet. That's pretty impressive loyalty to a brand that these consumers haven't even owned yet.
New iPads aside, there have been a few developments in the computer and gadget world that could very well increase Apple's market share over the next several months.
Component costs for computers are rising
According to Barron's, the disastrous floods in Thailand last year caused a shutdown of the factories producing hard disk drives, which most computer makers still use. The resultant shortage is driving prices up, and to add insult to injury, DRAM prices are rising as well. Already, prices for this common memory-storage component were up 7% from the beginning of the year, and now it looks as if they might jump even higher. Elpida, a major manufacturer of these devices, recently declared bankruptcy, putting supply lines in jeopardy. Analysts predict that prices may rise up to 15% this year if the plant's production is affected.
Why will these increases in tech components be a mere blip on the screen for Apple? The big factor here is that as these other parts are rising in cost and scarcity, there is a commensurate glut in NAND flash memory, which is the secret ingredient that will put Apple in the driver's seat in the months to come. Forward-thinking bunch that they are, R&D teams at Apple replaced hard drives long ago in favor of flash, regardless of cost. Now, they will reap the rewards.
Labor costs in China are rising, too
Recent pressure concerning wages and working conditions at factories in China, where most computers and other electronic devices are manufactured, has resulted in better working conditions and higher pay for those workers. In addition to Apple, other companies such as Hewlett-Packard (NYS: HPQ) , Dell (NAS: DELL) , and Nokia (NYS: NOK) have started talking about passing along those higher costs to the consumer.
Doubtless all, except perhaps Apple, will eventually do so -- particularly Nokia, whose margins on smartphones are notoriously slim. Officials at HP and Dell, for their part, are making no promises either way; both have experienced decreases in profit over the past year, however. Apple, with its much plumper profit margins, could actually choose to absorb the cost. Of course, since it seems that zealous customers will pay just about any price to have the latest and greatest from Apple, that may not be necessary.
Reduced price on iPad2 will upset the tablet market
Apple's decision to offer the iPad 2 at $399 could conceivably give Amazon.com's (NAS: AMZN) Kindle Fire and Barnes & Noble's Nook a bit more competition. A high percentage of respondents in the InMobi study stated that they would be interested in a less expensive iPad 2 in lieu of an iPad 3, but, more importantly for Amazon's tablet, there is now a mere $200 between the Fire and an iPad. An iPad. As for the rumored 7-inch tablet that Apple may or may not release later this year -- well, such a device could very well hinder Kindle Fire sales, too.
Depending on what Apple decides to do about raising prices, there could be a narrower price gap between a new HP or Dell device and an Apple. Although price never seems to be an object with Cupertino's loyal following, even a smidge of a price increase on HP's and Dell's part could make a buyer think twice about what an Apple might have to offer, for a fistful of dollars more. Then again, Apple just may decide to eat the cost increases, considering the enormous $97.6 billion cushion it sits upon. Either way, it looks like gloomy days ahead for the rivals of Cupertino.
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At the time this article was published Fool contributorAmanda Alixowns no shares in the companies mentioned above.The Motley Fool owns shares of Amazon.com and Apple.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Nokia, and Apple, writing covered calls on Dell, and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't 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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