Apple Inc. (NASDAQ:AAPL)'s new mini-IPad has entered the marketplace and with its higher price, it is avoiding a price war with the rival tablets from Google Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN).
In a new Nomura Research report, analysts review the tablet strategies of the three players along with the opportunities and risks found in their hardware, advertising and content.
For the sector of global communications equipment, Nomura kept its bearish outlook.
Here's some highlights from Thursday's report.
Tablet Hardware Pricing: Apple Deliberately Avoiding a Price War
With Google Inc (NASDAQ:GOOG) and Amazon’s tablet pricing in lock-step, Apple Inc. (NASDAQ:AAPL) has avoided direct competition with them via its higher-priced iPad mini tablet. From this, the net result has Apple significantly risking cannibalization of its larger iPad units with a lower ASP and gross margin item; Google and Amazon have room to increase their respective ecosystems.
For Apple, there's downside risk to the 9.7” iPad unit forecasts, unless iOS 7 can drive a greater separation between the iPad and iPad mini.
Mobile Advertising: Balance of Power Shifting toward Google
Analysts view Google’s mobile advertising position as continuing to improve, while Android's growth via low-cost tablets has been designed to advance mobile search user growth and bring additional advertising dollars into the mobile auction market. Through time, this will help narrow the the current 10-50% mobile vs. desktop search monetization gap; this is important for Google’s long-term revenue growth, as it is expected mobile search revenue will drive more than 100% of total forward search growth.
- The Android's growth also improves Google Inc (NASDAQ:GOOG)’s position against Apple Inc. (NASDAQ:AAPL) and iOS. Analysts view this as important, as they think Google’s mobile Safari toolbar search contract will be ready for renegotiation next year. Put together the probable absence of Microsoft Corporation (NASDAQ:MSFT) as a bidder, along with Android’s mobile search share growth and Google will gain bargaining power.
Nomura's current approximate 700 million 2014 estimated step-up in Google’s TAC payment to Apple may prove too aggressive. This affects both players: every $300 million change in this number adds approximately 450bp of growth to Google’s core revenue, while it takes approximately 250bp of gross profit growth away from Apple.
eBook Industry – Still in Amazon’s Control
- Nomura's analysts believe the iPad mini's high prices will probably limit its appeal for eBook readers. Along with Amazon’s low-priced Kindle tablets, it gives analysts more confidence that Amazon.com, Inc. (NASDAQ:AMZN) will keep its approximate 60% consumer eBook market share; Apple Inc. (NASDAQ:AAPL)’s eBooks will remain around 10%.
- For Amazon’s eBook's domination, it's important for its forward estimates, as analysts expect its high-margin eBook business to drive approximately 16% of next year's CSOI growth.
- On the other hand, Apple is moving forward in the education book market. It is still a somewhat “green-field” (only 6% digital penetration) and an arena Amazon currently has not made a focus.