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Pacific Crest Securities has raised its price target for Apple (NASDAQ:AAPL), arguing the company will release a smaller-size iPad priced at $299 this fall to compete with new tablet devices from Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN). The firm raised its price target for Apple from $630 to $690.
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“We anticipate an entry-level 7.85” iPad with 8GB of NAND capacity to price at $299 with an initial gross margin of 31 percent,” Pacific Crest analyst Andy Hargreaves wrote in a research note. Hargreaves estimates Apple to sell 10 million units of the smaller iPad the quarter ending December this year and 35.2 million in the next fiscal quarter. “We anticipate 25 percent cannibalization of the larger 9.7” iPad, so our total F2013 iPad estimate increases to 91.6 million from 65.2 million,” he wrote.
He added that he expected the company to stop manufacturing the iPad 2 line, which is currently the lowest-priced Apple tablet at $399, and make the iPad mini its new entry-level tablet.
Apple (NASDAQ:AAPL) has long been rumored to be developing a 7-inch version of the iPad, but has not said anything publicly. Last week, Google (NASDAQ:GOOG) launched its Nexus 7 tablet priced at $199, while Amazon is expected to upgrade its second-generation Kindle Fire, priced the same, soon. Both tablets have 7-inch displays and run on Google’s Android operating system.
According to IDC, Apple (NASDAQ:AAPL) could increase its market dominance with an iPad mini. “If Apple launches a sub-$300, 7-inch product into the market later this year as rumored, we expect the company’s grip on this market to become even stronger,” he wrote in a recent report.
Shares of Apple (NASDAQ:AAPL) closed higher 1.46% at $592.54 per share Monday on 14.14 million shares traded.
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