Apple is set to start selling an 8-inch version of the iPad to compete with Amazon.com's Kindle and other smaller tablets, but it set a higher-than-expected price tag of $329 that Wall Street fears could curb demand.
Apple's pencil-thin, smaller iPad Mini will cost much more than its competitors when it goes on sale on Friday, signalling the company is not going to get into a mini-tablet price war.
The company debuted the iPad Mini on Tuesday, with a screen two-thirds smaller than the full model and half the weight. In a surprise, Apple also revamped its flagship, full-sized iPad just six months after the launch of the latest model.
Apple's late founder Steve Jobs once ridiculed a small tablet from a competitor as a "tweener'' that was neither big enough nor small enough to compete with tablets or smartphones. Now Apple's own Mini enters a growing small-tablet market dominated by the Kindle Fire.
Competing for attention
The Mini's price fits into the Apple product lineup between the latest iPod Touch ($299) and the iPad 2 ($399). But company watchers had been expecting Apple to price the iPad Mini lower, at $250 to $300, to compete with the Kindle Fire, which starts at $159. Barnes & Noble's Nook HD and Google's Nexus 7 both start at $199.
"This really is not in the same category as some of the other 7-inch tablets"
- Avi Greengart, analyst
"Apple had an opportunity to step on the throat of Amazon and and Google yet decided to rely on its brand and focus on margin,'' said Bill Kreher, an analyst with brokerage Edward Jones.
Apple has sold more than 100 million iPads since April 2010. Analysts expect Apple to sell 5 to 10 million iPad Minis before the year is out.
Apple shares fell 3.3 per cent to $613.36 when the price was announced. Shares of Barnes & Noble jumped 6.1 per cent and Amazon rose 0.2 per cent.
When pre-orders start on Friday, the iPad Mini will be competing for the attention of gadget shoppers with the release of Windows 8, Microsoft's new operating system.
The screen of the iPad Mini is 7.9 inches on the diagonal, making it larger than the 7-inch screens of the competitors. It also sports two cameras, on the front and on the back, which the competitors don't.
The screen resolution is 1024 by 768 pixels, the same as the iPad 2 and a quarter of the resolution of the flagship iPad, which starts at $499.
The new model has better apps and is easier to use than competitors like Google's Nexus, said Avi Greengart, a consumer electronics analyst with Current Analysis.
"This really is not in the same category as some of the other 7-inch tablets,'' he said. "And that's before you consider that it has a premium design, it's made of metal that's extremely lightweight.''
Before his death in October 2011 of pancreatic cancer, Jobs attacked the whole idea of smaller tablets in his last appearance on a conference call with analysts.
"The reason we wouldn't make a 7-inch tablet isn't because we don't want to hit a price point. It's because we don't think you can make a great tablet with a 7-inch screen,'' Jobs said. "The 7-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad.''
Job's chief objection was that a smaller screen would make it hard to hit buttons on the screen with the fingers, never mind that Apple's iPhone, with an even smaller screen, was already a hit.
Apple Senior Vice President Eddy Cue started working on changing Jobs' mind. In an email sent to other Apple managers in January 2011, Cue said the CEO had started warming to the idea of a smaller tablet. The email surfaced as part of Apple's patent trial against Samsung Electronics this year.
Company watchers have been expecting the iPad Mini for a year and most of the details, except the price, had leaked out.