BRACE YOURSELF: The Mini-Tablet WAR is Heating Up

The tablet PC market has been exploding since Apple Inc. (NASDAQ:AAPL) unveiled the original iPad in 2010. Tablets are not only becoming more popular, but they are also eating away at traditional PC sales. As a result, tech companies are scrambling to carve out a niche in the mini-tablet market, an area where Apple’s dominance is not found, yet.

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Earlier this year, Morgan Stanley (NYSE:MS) released data from its AlphaWise global consumer survey that found 37 percent of tablet purchases last year came at the expense of possible PC shipments, higher than the expected 29 percent cannibalization rate. This growth has not gone unnoticed by Amazon.com Inc. (NASDAQ:AMZN). In November 2011, the world’s largest online retailer introduced shoppers to the Kindle Fire. The 7-inch tablet was the first of its kind by Amazon. Selling at a price of $199, the Kindle Fire is the number one best-selling product on Amazon’s site. The lower price point gives consumers an option that is below $499, Apple’s lowest price on its third generation iPad.

In order to build upon its niche in the lower-end tablet market, Amazon may be close to launching another round of Kindle Fires. Analyst Richard Shim from NPD DisplaySearch predicts that Amazon could soon release as many as four new Amazon Kindle Fires. Three versions would feature a 7-inch screen, while one may have an 8.9-inch screen. The smaller screen versions could include a 1,024×600 display with no camera, a 1,280×800 display with a camera, or a 1,280×800 display with a camera and 4G. He speculates that the 8.9-inch model might have a 1,920×1,200 display. All versions would be slated for an August or later release. “These are supply chain indications. This is what we are seeing right now,” Shim explained.

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While Amazon has enjoyed the lower-end market mostly to itself, more competition is on the way. Google Inc. (NASDAQ:GOOG) recently announced its jumping into the mini-tablet wars with the Nexus 7. It has the same $199 price tag as Amazon’s tablet and features a 1280×800 display, Nvidia’s (NASDAQ:NVDA) Tegra 3 quad-core processor and 1 GB of RAM. It also has a front-facing camera. “They [Google] all but called it a Kindle Fire killer,” Altimeter Group analyst Chris Silva told Reuters. “They’re clearly gunning for that Number 2 spot behind Apple’s iPad that is currently occupied by Kindle.”

Although it may seem like only Amazon and Google are left to battle it out in the sub 9-inch tablet market, many people remain focused on Apple. Pacific Crest Securities announced last week that it expects the world’s largest company by market value to release a smaller-size iPad with a price tag of $299 this fall. “We anticipate an entry-level 7.85-inch 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. He 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.

It is still too early to judge who will win the lower-end tablet war, but it is hard to imagine that if Apple releases a smaller version of the iPad, that it will not be the dominate solider on the battlefield. On the positive, customers will have more quality options than ever before when choosing a mobile device and the growth outlook in the industry appears very attractive. NPD DisplaySearch expects tablet PCs to be the major growth driver for the mobile PC market over the next several years and tablet shipments to surpass notebook shipments in 2016.

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