MENU

Will Apple pay for Amazon and Microsoft’s price cuts?

Iconic tablets have been getting cheaper this summer.

Amazon.com (NASDAQ: AMZN) cut the price of its Kindle Fire HD by US$40 last week. The 20% haircut lowers the price to a mere US$159. Earlier this month, Microsoft (NASDAQ: MSFT) gave its high-end Surface Pro tablet a US$100 markdown. The move came three weeks after slashing the price of its Surface RT by as much as 30% to start at US$349.

The moves are likely taking place for entirely different reasons. The Surface RT isn’t selling, so this could be Microsoft’s last-ditch effort to make it work before shelving the whole Windows RT experiment. The Surface Pro isn’t going anywhere. It’s based on Windows 8, and Microsoft has everything riding on its flagship operating system. The Surface Pro was just too expensive, and this helps make it a more compelling purchase. The Kindle Fire HD price cut — which is being billed as a “limited time” price break — is probably Amazon’s way to clear out its inventory ahead of an update in the coming weeks or months.

Then we get to Apple (NASDAQ: AAPL). Apple has never budged from its US$499 price on its current generation iPad. It has been willing to compromise, though. We got the cheaper bite-sized iPad Mini. Apple does keep older models around at lower price points.

Judging by its pricing, one would think that Apple is immune to the price wars that are taking place around it. Reality paints another picture. Apple’s share of the tablet market, according to industry tracker IDC, fell to 32% during the this past quarter from 60% a year earlier. That’s not very encouraging, and the quarter ended just before Microsoft and Amazon began making their devices even cheaper.

Are iPad price cuts coming? Will next month’s reported iPhone event also serve as a platform to aggressively price the tablet that defined the market before succumbing to the Android invasion?

Why not? Apple is already suffering through the symptoms of a company slashing prices. Margins have been contracting in recent quarters, and average selling prices of its tablets have been heading lower since the iPad Mini release and Apple’s decision to keep older models around at more accessible prices.

Anchoring the new USiPads at $499 is a moral victory at this point, but it’s not a real one.

A price cut didn’t seem necessary when Android tablets began hitting the market at prices that cost less than half as much as the iPad. No one wanting to buy an iPad would settle for the Android ecosystem. However, that line has been blurring. That’s an opinion, but it’s backed by the fact that Apple was commanding two-thirds of the market at the beginning of last year, and now it’s accounting for less than a third of the world’s tablet shipments.

Everyone may have different reasons for moving their prices lower, but Apple can’t afford to ignore the situation. The last thing investors want is to see a fiscal coroner report in a few years that the iPad suffered a death by a thousand cuts — and none of them self-inflicted.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

A version of this article, written by Rick Munarriz, originally appeared on fool.com.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!