iPad 3 for $299 ... no, and here's why

Cheap iPads for all? Don't hold your breath!

Over on ZDNet's Laptops & Desktops blog, Sean Portnoy speculates about possible aggressive price drop for the iPad 3 once it's released. Could Apple really sell the entry-level iPad 3 for $299?

Here's Portnoy's theory:

But would Apple get even more aggressive? After all, the iPad 2 supply could be limited, and once they’re gone, then its cheapest slate would only be $399, which more Android tablet makers can match (like the Sony Tablet S). Could the company drop the iPad 2 price all the way to $199 to match the Kindle Fire and then charge $299 for the new entry-level iPad 3?

Currently, the entry-level iPad 2 sells for $499 (16GB, WiFi), but the rumor mill is in full swing and is speculating about a $100 price drop for the entry-level units, with a higher-priced 'retina display' model with a 2048x1536 being available for $499.

I have several problems with this.

  • I'm not convinced that Apple will release a 'retina display' iPad 3. While it's a sexy idea, a 2048x1536 screen is really dense and would play HD 1080 videos windowed which would mean the density would work against the device for media playback. It also takes a lot of horsepower to push that many pixels to the screen, and more power means more battery consumption. So the case for 'retina display' still needs to be made.
  • The BOM (Bill of materials) doesn't make sense. It's estimated that the BOM for the iPhone 4S is nearly $200, but an unlocked, unsubsidized handset will set you back a whopping $649. Apple is not in the razor-thin margins business. Apple might be able to strongarm carriers into carrying the iPad as a contract line item and be able to sell them cheaper, but the iPad sells well as it is without contracts and such.
  • Why does Apple need to engage in such aggressive price cuts? It's already selling iPads as fast as it can make them and there's no serious competitor in sight. A price cut would only put more (unnecessary) demands on the supply chain. So again, where's the incentive.
  • Apple is not known for such aggressive price cuts. The company knows that once a price drops, there's no way to push them back up.
  • Kindle Fire isn't that much of a threat to the iPad. The Kindle Fire sure is a threat, but it's a threat to other Android tablets and not the iPad. Unless we see a dramatic showdown in iPad sales over the coming quarter there's no need for Apple to do anything drastic.

So, am I expecting a $299 iPad 3. No, I'm not, and neither should you.