Apple Inc. (NASDAQ:AAPL) could be facing a dilemma in setting a price for its new iPad mini as it strives to strike a balance between gross profit margin and competitive pricing. The company will launch the device today, along with several other products according to analyst predictions, which includes an iMac product line update among others. The technology giant chose to come up with a mini version of its 9.7" iPad, to extend the addressable market for the business unit. This is expected to boost the revenue from the unit as the company endures the smartphones and tablets battle, which continues to attract interest from other tech companies like Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT).
According to an analyst report from Nomura Equity Research, initial reports indicate that the new iPad mini models, pricing is expected to sustain the current iPad 3 gross margin of between $28-35%.
According to Nomura's estimates, the new iPad mini is expected to be priced at an average of $329 per unit, which is a premium of approximately 65%, as compared to competitors prices of $199 for Amazon.com, Inc. (NASDAQ:AMZN)'s Kindle Fire and $250 for Google Inc (NASDAQ:GOOG)'s Nexus 7, 16GB models. This is not competitive pricing, as per our earlier report, which was suggestive of $242 per unit according to a consumer survey conducted by Baird Equity Research in September.
Therefore, Apple Inc. (NASDAQ:AAPL) is facing internal pressure to maintain a consistent margin for the iPad business unit, while at the same time, competitive pricing is demanding lower pricing of the device, as per market rates of similar devices. Nonetheless, Apple Inc. (NASDAQ:AAPL)'s new iPad mini is expected to be slightly larger than both the Google Nexus 7 and Kindle Fire, which gives it a bit of space to add a premium on competitor prices.
However, the game could get even worse, as Google Inc (NASDAQ:GOOG) is rumored to be plotting another tablet, to be produced in partnership with Samsung Electronics Company Ltd, as well as a smaller tablet to be priced at about $99 each, said the analysts.
Additionally, Apple's iPad mini launch coincides with several other announcements, including Microsoft Corporation (NASDAQ:MSFT)'s Windows Surface tablets, as well as the Windows Phone 8 O.S. within the next 2 to 5 days.
Apple Inc. (NASDAQ:AAPL) is also expected to announce an update on its iMac product line, despite the cannibalization the business unit is facing from tablet devices. It will be interesting to see the updates on the PC products, as the industry continues to lose business to the mobile smart devices.
All in all, Apple Inc. (NASDAQ:AAPL) must find a way of striking a balance between its desired gross margin on the new iPad mini, and the ability of the device to remain competitive in the market, which promises price wars in the near future.
At the time of this writing, Apple Inc. (NASDAQ:AAPL) stock was trading at $627.20 per share, down $6.83, or 1.08% decline from yesterday's close.
Disclosure: I do not hold any position in the stocks mentioned, and do not plan to do so within the next 72 hours.