Apple 2.0

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Could Apple iPad prices fall?

February 8, 2010: 1:42 PM ET

Management plans to stay "nimble" if sales are sluggish, says an analyst

iPad price grid. Photo: Michael Copeland

In a report to clients issued Sunday, Credit Suisse's Bill Shope shares the highlights of a recent meeting with Apple (AAPL) management.

The one getting the most play -- first in the Wall Street Journal's Market Beat blog -- is Apple's apparent (and surprising) willingness to talk about iPad pricing.

"While it remains to be seen how much traction the iPad gets initially," Shope wrote, "management noted that it will remain nimble (pricing could change if the company is not attracting as many customers as anticipated)."

Given that the iPad's release date is still nearly two months away and that its starting price -- $499 -- is $500 less than the Journal's pre-introduction estimate, talk of price cuts seems premature.

More credible is Shope' report about how Apple sees the iPad fitting into its product lineup:

"Apple wants the iPad to be the best device for a few key use cases. For instance, the company believes it could eventually be seen as superior to both handheld and notebook devices for browsing the Internet, using the App Store, and consuming mobile media (video, photos, and e-books). Nevertheless, in other areas, notebooks, the iPhone, or an iPod may be more appropriate. This clear segmentation of capabilities suggests that cannibalization may be less of a concern than most currently believe."

Below: more details from Shope's report, courtesy of Silicon Alley Insider's Jay Yarow.

  • Management declined to tip their hand about Verizon (VZ).
  • Instead, they say they're focused on international expansion. The iPhone is only in 86 countries, while rivals are in 160 countries.
  • Apple is happy with enterprise adoption of the iPhone, and it thinks that's a market that will expand.
  • The movie industry's legacy deals are screwing Apple from getting the content it wants. For example, HBO has locked out certain titles which Apple can not get. The contracts protecting those locks won't expire for a few years.
  • It's hard to sell a TV show for $1.99 when Redbox is renting a whole movie for $1.00.
  • On e-books, Apple cares less about the long-tail and more about the hits. It wants the 'right titles quickly.'
  • Apple believes the education market presents a massive opportunity for the iPad.
  • Despite the low price of the iPad, Apple "expects strong profit performance."
  • Apple says most critics haven't played with an iPad, and are focused on what the it doesn't do, rather than what it does. (link)

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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