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Apple betting on fans’ devotion with new iPad

By Adam Satariano
Bloomberg News

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Apple Inc. is responding to growing competition in tablet computers by holding firm to a strategy of selling iPads at a premium.

Even as rivals such as Amazon, Samsung and Google introduce tablets at lower prices, Apple Chief Executive Officer Tim Cook went in the opposite direction with Tuesday’s announcement. He unveiled a new iPad mini with a high-definition screen that starts at $399, $70 more expensive than last year’s model. Apple also introduced a lighter and thinner design for its larger tablet, renamed iPad Air, starting at the same price of $499.

The new iPads follow the debut of the iPhone 5c last month at a heftier price than analysts expected, underscoring how Apple is appealing to the higher end of the market where more profit is made. The company is betting customers see its products as a unique mix of hardware, software and services that are more valuable than lower-cost alternatives.

“You can see from the pricing decision that Apple doesn’t really fear much competition,” said Benedict Evans, an analyst at Enders Analysis, who attended Apple’s event in downtown San Francisco.

Apple’s top marketing executive, Phil Schiller, said the company sees the tablet market bifurcating. On one end, Apple is focused on delivering high-quality devices, while the other has lower-quality devices and faces more pricing pressure, he said.

Schiller added that the iPad mini’s increased price is mainly the result of steeper costs for the new high-definition screens. Apple also dropped the price of last year’s iPad mini model to $299.

Apple’s new iPads, which will be shipped next month, are debuting in a crowded market where companies including Samsung, Asustek, Google and Amazon have unveiled tablets, often at lower prices. The competition ramps up pressure on Apple because the iPad is its second-largest revenue source after its flagship iPhone. Success of the new models is critical as the company attempts to reignite revenue growth, which has slowed.

Apple’s new iPads, which also include more powerful processors and faster wireless speeds, are part of a broad product update ahead of the lucrative holiday shopping season. The company released the new iPhone 5s and 5c last month.

Samsung, Asustek, Lenovo Group Ltd., Acer Inc. and others are offering tablets with prices starting at less than half of the iPad mini’s previous starting cost of $329. Amazon.com introduced new Kindle Fires last month with higher-resolution screens at prices starting from $229, while Microsoft Corp. and Nokia Oyj took the wraps off new tablets this week.

Amid the competition, Apple’s tablet market share slid to 32 percent in the second quarter, compared with 60 percent a year earlier, according to IDC.


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