Apple 2.0

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Apple's newest iPad: What to expect on Oct. 23

October 21, 2012: 11:25 AM ET

A round-up of what the analysts are saying

The press invitation. Source: Apple Media Events

FORTUNE --It's the worst-kept secret in Silicon Valley.

Even before Apple (AAPL) issued press invitations for Tuesday's special event in San Jose, anybody who was paying attention seemed to know that the company was preparing to launch a new, smaller iPad in time for this year's holiday gift-buying season.

Every day the Apple rumor sites are filled with fresh speculation about what the new device looks like and how much it might cost. But to get ready for Tuesday's unveiling, we thought we'd stick to what the Wall Street analysts are saying. A sampling:

Name: Although the bloggers have toyed with a variety of names -- from iPad Mini to iPad Air to simply iPad -- all the analysts' notes we've read call it the iPad mini. The only disagreement is whether or not to capitalize the M.

Click to enlarge. Source: Cult of Mac

Dimensions: Piper Jaffray's Gene Munster is still hedging his bets, calling for a device with a 7-to-8-inch display, but most analysts -- and all the tech press -- have zeroed in on a screen measuring precisely 7.85-inches on the diagonal, yielding an area 40% larger than Amazon's (AMZN) Kindle Fire and one third smaller than the original 9.7-inch iPad.

Screen resolution: No disagreement here. To keep the price down, the smaller iPad will sport fewer pixels (probably 1024 x 768 @ 163 dots per inch) than the "Retina" display (2048 x 1536 @ 264 dpi) of the third-generation iPad.

Memory: There's general agreement that the entry-level model will come with 8GB of flash memory -- barely enough to hold the operating system, a smattering of apps, a handful of songs and maybe a video or two. (By comparison, the entry-level iPhone starts at 16GB and the iPod touch at 32GB.) To be as useful as the previous generations of iPads, customers will probably want to step up to 32GB or 64GB, which may be what Apple is counting on to achieve its customary profit margins (see below).

Entry price: There is considerable disagreement about how low Apple has to go for the smaller iPad to become what Sterne Agee's Shaw Wu likes to call "the competition's worst nightmare." Wu doesn't believe it has to sell for as little as $199 -- the price of Amazon's Kindle Fire HD and Google's (GOOG) Nexus 7. He's looking for something in the $299 to $349 range for 8GB, Wi-Fi only. Piper Jaffray's Munster and Topeka Capital's Brian White think the company might, in Wu's words, "go for the kill" with an entry price as low as $249. Janney's Bill Choi follows what seems to be the Street's consensus: "a premium product at a premium price point" of $299-$399.

Extras: None of the analysts we read addressed the cost of adding extra memory or a cellular radio, but if history is any guide this is where Apple will look to fatten its profit margins. We've seen hypothetical price charts in which Apple charges $100 for every bump up in memory (to 32GB and to 64GB) and from $100 to $130 for LTE. In one scenario, the top-of-the-line iPad mini with 64GB of memory and a cellular radio would cost $659 before tax.

Sales: Estimates for first-quarter sales range from 3-4 million units (Wu) to 5 million units (Munster and Choi) to 10 million (Stifel Nicolaus' Aaron Rakers, Pacific Crest's Andy Hargreaves and Credit Suisse's Kulbinder Garcha).

Cannibalization: Munster is looking for an iPad cannibalization rate of 20% (in other words, for every 5 million iPad minis customers buy, Apple sells 1 million fewer 9.7-inch iPads.) Choi sees a lower rate -- 15% -- but one that cuts into sales of both the larger iPads and the iPod touch.

Other announcements: Wells Fargo's Maynard Um is expecting Apple to use the event to unveil new iMacs, a new Mac mini and a 13-inch MacBook Pro with a Retina display. Wu thinks there may be also be a refreshed Mac Pro. The rumor sites are also calling for a new third-generation iPad that sports the same updated ("Lightning") port used in the iPhone 5, the newest iPad and, presumably, every iOS device from now on.

The event that will settle all these issues is scheduled to begin Oct. 23 at 10 a.m. Pacific (1 p.m. Eastern). JP Mangalindan will be covering it for Fortune.com and I'll be monitoring the live blogs from Brooklyn.

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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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