What the iPad says about Apple's strategy

Suddenly there's a very good reason why the company is holding on to its mountains of cash.

By Jim J. Jubak Mar 8, 2012 5:45PM

Credit: © Tony Avelar/Bloomberg via Getty Images
Caption: Apple Unveils Updated iPad

By now every techno-geek in the known universe has weighed in on what everyone but Apple (AAPL) calls the iPad 3. The general impression I get from reading the comments is the rather typical wish that Apple had done more.

The quad-core processor isn't as fast as the one on the iPhone. Apple didn't significantly reduce the weight of the new iPad. The form looks the same as the current iPad. There's even the wishful longing for Siri to talk to.

What interests me, however, about the iPad -- since I'm a geek of a different color -- is what it tells us about Apple's competitive strategy.

I've reached four conclusions:

1. The most expensive iPad 3 -- the one that includes 4G capabilities and will sell for $629 to $829 -- is directed more toward Apple's reselling partners, Verizon (VZ) and AT&T (T) than it is to the market place. These two companies are in the middle of a very expensive buildout of their 4G/LTE next-generation networks, and that capital spending will pay off for the wireless companies only if it attracts the kind of gigabyte-chomping user that the top end of the iPad line will appeal to.

I'd be amazed if the 4G versions take more than 10% of iPad sales, but the product is designed to let the wireless companies show off what their new networks can do. And to prevent any Android or Microsoft (MSFT) tablet from capturing the high end of cool. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

2. With the introduction of the iPad 3 at $499 for the Wi-fi version, Apple is lowering the price of the iPad 2 to $399. That closes the price gap with Amazon's Kindle Fire at $199, but at $399 Apple is still making money. The price point says that Apple does feel the need to respond to the Kindle Fire -- at $399 some potential Kindle buyers will decide to move up to the iPad 2 instead -- but it also says that it doesn't feel any incredible urgency to step up the fight now.

3. A new, bigger, better AppleTV is on the way. The step-up in the iPad 3 screen to the 1080 standard that matches HDTV means that users will be able to view content on this device and on any future Apple TV set in the same HD format -- and it will all be downloadable from iCloud.

In the mini-announcement of changes in AppleTV, the company kept the device basically unchanged except for adding a new processor that will let it handle, you guessed it, 1080 HD content.

4. I'm more convinced than ever after the AppleTV mini-announcement that I know what the company is planning to do with a big chunk of its $100 billion in cash: buy more content for AppleTV and iTunes. Apple has an AppleTV that can stream HD content and an iPad 3 that can stream HD content, but the sources of that streaming are limited to a Netflix (NFLX) library, to some sports, and to iTunes.

The content at iTunes just isn't complete enough to make AppleTV work in the marketplace. The product needs access to more of the stuff that's still controlled by the networks, by cable, and by the studios. Getting content deals from those folks isn't all that hard but it can be expensive. If you're looking for a way for Apple to spend its cash to create a competitive advantage, this is it.

Think about the most effective way to counter the Kindle Fire -- it's not by cutting the price of an iPad to $199; it's by offering more attractive content. The lesson of Apple's App Store all over again.

And that’s my take on Apple's iPad 3 event Wednesday.

Apple finished the day, March 7, up 43 cents a share or 0.08%. It closed Thursday up more than 2% to $541.99.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Apple as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.

Tags:

AAPLJim JubakMSFTNFLXTVZ

17Comments

Best

Mar 9, 2012 10:15AM

I'm done with Apple products and will not help contribute to the corporate greed of this company. Many American companies have lost their way as the ONLY thing that matters is making another dollar till it adds up to millions and billions. They would rather employ slave labor and put up suicide nets then provide decent jobs and employ fellow Americans. What's better, making Wall Street happy or doing what's morally right? I do my research now and buy products that benefit this country and fellow Americans the most. My new car purchase last week held true to this. Our first choice was an American company but the product was made in Mexico, even though it rated high in quality and safety we struck that one off our list. We went with a product from a different manufacturer made in our home state. The cost was $10 more a month and I consider this money well spent. To many people in this country have lost their way as well and choose not to do what's in the best interest of this country. Not giving consideration to what we buy everyday will doom this nation and continue to feed corporate greed. Look at the label and research the product...if it cost a couple dollars more and benefits more people in the USA I'd like to think most would opt to buy that product and reward that company. Am I the only one who thinks this way?

SYMBOL	NAME	RATING
ABT	Abbott Laboratories	10
AIG	American International Group Inc	10
ATVI	Activision Blizzard Inc	10
CA	CA Inc	10
CSCO	Cisco Systems Inc	10

126	258	459	600	671	683	603	455	270	113
1	2	3	4	5	6	7	8	9	10

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Suddenly there's a very good reason why the company is holding on to its mountains of cash.

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