Market Overview

How will the iPad 3 Affect Apple's Share Price?

Reporting rumors on Apple (NASDAQ: AAPL) is an industry itself, and the rumor mills have been busy churning out stories of an upcoming iPad 3 that may be released at an early event in February. The speculation first appeared on a Japanese website that previously reported correctly on the iPad 2 before it was released last March. The magazine has also gotten minor details on other releases wrong, as AppleInsider notes, but the fact that its iPad prognostication was proven true last year is holding the attention of a lot of Apple fans. The case for a new iPad is supported by iLounge's Jeremy Horwitz, who believes he saw the next-gen device at the Consumer Electronics Show in Las Vegas.

The rumors may be part of why Apple's stock price reached a new all-time high in Wednesday's trading, briefly crossing the $428 mark. It is still trading near the top of its 52-week high at around $427 a share, far below most analyst targets of over $500 a share. Many analysts have kept the company's buy or overperform rating. It is difficult not to be bullish on a company with over $80 billion in cash reserves. Apple's earnings will also be released next week, and analysts are anticipating a rise in the stock thanks to strong sales of iPads and other Apple devices during the holiday season.

Analysts are also expecting Apple to jump into the textbook market, a natural expansion of its current iBooks platform, which allows consumers to purchase and read books from iPads, iPhones, and iPods. The popularity of Apple devices amongst university students would make a jump into the textbook market relatively easy for Apple, helping it to cannibalize yet another industry.

If rumors of the iPad 3 turn out to be true, it would help Apple dominate textbook sales. The new device, like almost every Apple device released in the past 5 years, is set to wow, with a higher-resolution screen. An even more subtle but important development may be the suggestion that the iPad 2 will still be sold alongside the newer device at a lower price point than its current $499. This wouldn't be a new development for the tech company, since it has taken a similar approach with its iPhone--the 3GS, iPhone 4, and 4S models are all displayed alongside each other at Apple stores worldwide.

The simultaneous sales of a cheaper iPad 2 and beefier, pricier iPad 3 would help the company compete against lower priced alternatives such as Amazon's (NASDAQ: AMZN) Kindle Fire, which has attracted growing interest thanks to the company's monstrous market share and the device's $199 price point. If a cheaper iPad 2 approached that price point, it could cannibalize growing sales of Amazon's new tablet.

It could also make tablets running Google's (NASDAQ: GOOG) Android platform less attractive. This would be a major win for Apple, who has seen the Android platform gobble up its smartphone marketshare thanks to a lower price point and an attractive user interface that Steve Jobs called "grand theft." Android was one of Jobs's last great battlegrounds--he famously said he would spend his "last dying breath" fighting Google.

It wouldn't take much to fight the Android tablets in terms of price. The Samsung Galaxy Tab, one of the cheapest of the popular tablets around, sells at $350 for the 7" model, which Apple would have to match by dropping the iPad 2 price by $150. According to DigiTimes, the iPad 2 cost $326.60 to manufacture when it first came out, so manufacturing costs for the device would need to climb a bit for this to become a possibility.

While the sustained presence of the iPad 2 alongside the iPad 3 would shake up the tablet market, the iPad 3 itself could help Apple move more merchandise if early adopters queue up for the new device. While tablet sales have exploded from nothing to millions in just a couple years, analysts are projecting the devices to continue to sell. This is partly because consumers are relying on tablets to access media more than ever before. A recent study by Accenture suggests that consumers will be buying more tablets and less televisions as they continue to watch t.v. on handheld devices more often.

While Apple's high price might concern some investors looking for a resistance level, another concern is its new face. With the passing of Steve Jobs, the company now depends on Tim Cook to impress consumers and investors alike when unveiling Apple's new products. Steve Jobs's presentation skills are irrefutable, and the man's "reality distortion field" set a new standard for how companies managed their relationship with the public. Carmine Gallo, author of The Presentation Secrets of Steve Jobs noted in a post for the Wall Street Journal that Tim Cook kept Jobs's presentation style. Now that Jobs is gone, people will be scrutinizing his next presentation more closely than ever to see if he can keep up Steve's magic.

We won't have to wait for an iPad 3 unveiling to see Cook perform, since the company will hold a special education event on Thursday. This may be a good opportunity for Apple investors to test Cook's confidence, now that he is taking Apple forward.

Posted-In: News Movers & Shakers Retail Sales Hot Tech Trading Ideas General Best of Benzinga

 

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