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IPad pips predecessors in price point

Last updated: 07 March, 2011
Jenna Wortham, March 7, The New York Times :

Market mantra

The iPad 2, unveiled recently, offers several sleek improvements over its predecessor. But its most attractive feature is perhaps the same one its predecessor had: the price tag.

Apple’s second generation iPad. AFPThe Samsung Galaxy Tab is among the many Android-based tablets aiming to unseat the iPad 2. And what makes that feature even more compelling is that so far, Apple’s competitors in tablets cannot beat or even match it. The iPad 2 starts at $499. Apple says that since it introduced the original last April, it has sold 15 million of the devices, generating $9.5 billion in revenue.

The Motorola Xoom and the Samsung Galaxy Tab were introduced recently, both to generally good reviews but at higher prices. Dozens of hardware manufacturers are scrambling to bring their own variations to market this year: Hewlett-Packard with the TouchPad, HTC with the Flyer, LG with the G-Slate and BlackBerry with the PlayBook.

Analysts and industry experts point to a number of reasons. Primarily, they say, Apple’s deep pockets — a staggering $60 billion in cash reserves — have allowed it to form strategic partnerships with other companies to buy large supplies of components, for example, inexpensive flash memory. By doing this, the company probably secures a lower price from suppliers, ensuring a lower manufacturing cost.

At the same time, they say, Apple has sidestepped high licensing fees for other items it needs, like the A4 and A5 processors within the iPads. Those parts, designed in-house at Apple by a company that Apple bought, are among the costlier components needed to make a tablet computer. Yet another advantage is Apple’s wide net of its own global retail shops and online stores; for customers, this means they can avoid a markup from a third party like Best Buy.

Although other companies have some of these factors in their favor, no one but Apple has all of them. Steven P. Jobs, chief executive of Apple, who took the stage during the Apple press event Wednesday in San Francisco to announce the iPad 2, made a not-so-discreet swipe at rivals.

For example, like Apple, Samsung cuts costs for making its Galaxy Tab, a seven-inch tablet, because it builds many of the components itself. Over time, analysts say, efficiency in production will help bring down costs for competitors.


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