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 iPadBy 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. 
17Comments
Mar 9, 2012 10:15AM
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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?
Mar 9, 2012 4:39AM
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Why not use that cash to employ Americans to build their products, rather than slave labor in china.  $100 billion would easily pay for an american labor force of 20,000 at around an average of $50,000 a year for the next 100 years.  Not adjusting for inflation of course.  That sure would help this country.
Mar 8, 2012 11:13PM
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Comparing 4G/LTE to slower 3G & 2G is like comparing a Ferrari to a Ford Model T.  Companies that don't keep up with the pace of this new technology leap are going to be left so far behind they won't even be in the race.
Mar 8, 2012 7:18PM
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Smile You don't actually believe they are going to fill those douche bags with cash would you?
Mar 8, 2012 9:54PM
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I remember they filed a patent for watching 3d without glasses. If they put in their TV while releasing, that would be an added bonus and a strong selling point. Currently, watching 3D @ home with glasses is stupid and takes all the fun away. Apple can penetrate that market pretty easily.

 

As for the content, I think XBox is gaining the strength pretty fast with the content, ESPN, Netflix, Hulu, Youtube to name a few. If they add Amazon, HBO I think you would need a compelling reason to buy a separate Apple TV. Atleast, I would need a reason to buy another TV.

Mar 9, 2012 10:39AM
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The competition from the kindle fire isn't just that it is cheaper, it is a great size for carrying in a purse or pocket yet still big enough to read and use the web on.  I have been hoping apple would make a tablet the size of the fire for YEARS.  I would be willing to pay the same $829 for a smaller one with all the great features of the New iPad.  I just don't want to carry around a full size iPad because it would not be practical for taking pictures, and fitting into any purse/pocket as needed.  I know, your going to say, then get an iPhone.  Nope, too small and I don't want to pay $80+ a month for the voice + data plan.  I only need the 4g data.  Rrrr.  Wish I knew if this was something that was in the works for all that cash. 
Mar 9, 2012 5:23AM
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They need to hold onto the cash because they can't get it out of China....China won't let them...there's too many restrictions....
Mar 9, 2012 12:13PM
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No matter what you guys say, people will still line up for Apple products. Why, I think that's what haters should find out. But I know they won't, because they might find the real reason.
Mar 11, 2012 10:32AM
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"The quad-core processor isn't as fast as the one on the iPhone." Incorrect Statement. The A5X Processor is a Dual-Core processor with Quad-Core graphics. The iPad 3 processor is not slower than the iPhone 4S' processor, as it is either the same clock speed or greater (rumored to be 1.5 ghz). The current iPhone and iPad (4S and second gen.) use the dual core A5 processor clocked at 800mhz and 1Ghz respectfully. So, the iPad 2 already has a faster processor than the iPhone 4S. Finally in terms of graphics power the upcoming iPad is significantly faster, as it has to support the monster screen resolution.
Mar 9, 2012 3:25PM
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I agree.  That's why Apple gave away $10,000 for a recent lucky winner downloaded Apple's App, and the improved HD is for.  However, will Apple creates or produces its own brand contents?  or, who will be the candidates for the future merger?
Mar 9, 2012 10:18AM
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Stock should jump up to 600 when ipad whatchahoola hits stores.
Mar 9, 2012 9:40AM
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I haven’t paid more than $50 for a cell phone ever since the big communications companies started giving them away with their service plans. Since consumer class computers are now much more used for communications and information transfer than local processing, couldn’t this be the logical business model we gravitate to for these devices as well? Maybe Apple should buy Verizon or AT&T.

 

Mar 8, 2012 11:08PM
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Apple is coming out with a smaller one to compete with kindle yep.
Mar 9, 2012 1:37PM
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Apple's slaves are hard at work at a $1.68 an hour 14 hour days the TV is on its way the

selfish Americans will love it

Mar 9, 2012 10:38AM
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ipee isn't for the over 60s who blog this article. 

Mar 9, 2012 11:19AM
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Happy Sheep Day,

 

To the fanboys that are already in line for Apple iPad 3, "Happy Sheep Day" to you.

 

I wonder with the new launch of this iPad if Samsung or Motorlia should be suing Apple for adding 4LTE to their tablet. Or maybe they should find some other trivial item and sue them over it. Seems that is all Apple knows how to do. With 4LTE doesn't that mean that Apple copied the other Tablet makers?

 

Honestly I hate Jobs, glad he is dead, he was a jerk. I wish Apple the best, but don't care for how they play dirty all the time trying to sue for every little thing. If everyone played like Apple, you would have Ford or GM suing Kia because they put rubber tiers on their car. McDonalds suing Burger King because they started a hamburger business.

 

I hope Apple doesn't die out, but I would love to see them knocked down to the lowlife company that they truly are. Thanks Jobs for leaving a legacy of hate, your pompous attitude you had while you were alive will forever make me hate Apple.

Mar 8, 2012 11:04PM
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They are keeping all that cash so they can buy a piece of China ........... We will see how they do since Jobs is gone, their products are still a piece of Sh-t just take the time to read postings on the web, defects up the azz from LCD cracking for no reason to the Computers won't wake from the sleep mode and goes into a coma and what really gets me is they know and have no clues as how to fix them, I know I'm trying to sell one of those coma ones ..... the problems are so numerous I can't list them ...
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