Apple Inc. (NASDAQ:AAPL) could maintain a higher market share in the tablet market compared to the smartphone market; however, the tech giant needs to lower its pricing, according to Toni Sacconaghi, analyst at Bernstein Research.

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Sacconaghi recommended an outperform rating for Apple Inc. (NASDAQ:AAPL)’s stock with a price target of $725 per share. The stock price of the iPhone and iPad maker is trading around $428.40 per share in early morning activity in New York.

In his note to investors, Sacconaghi noted that Google Inc (NASDAQ:GOOG)’s Android operating system managed to climb from zero to almost 70 percent share in the smartphone market while Apple’s iOS operating system went up from 9 percent to 19 percent during the same period.

Sacconaghi believed that Apple’s situation in the tablet market is not the same because it has a different approach with its tablets. The price and distribution factors are more positive for the company in tablets.

According to Sacconaghi, Apple gained a gross margin of more than 50 percent on the subsidy model of the iPhone compared with the ~30 percent gross margins generated from other unsubsidized products such as the iPod, iPad, and Mac.

Sacconaghi’s note explained that Apple Inc. (NASDAQ:AAPL) left a price umbrella for other device manufacturers to offer cheaper and unsubsidized smartphones. Its competitors using the free Android operating system were able to offer unsubsidized smartphones at a lower price than the iPhone and still gained ~30 percent gross margins particularly on high-end phones.

On the other hand, Apple Inc. (NASDAQ:AAPL)’s approach with tablet market is not the same. The company did not leave a similar price umbrella for its competitors in the tablet market to be able to offer a lower price than the iPad. According to Sacconaghi, the iPad was cheaper when it was first introduced in the market compared with other tablets that had inferior features.

However, he noted that there are now competitive tablets powered by the Android operating system, as Amazon.com, Inc. (NASDAQ:AMZN), which makes profit from content and Google Inc (NASDAQ:GOOG), which generates revenue from search, are aggressively pricing hardware in.

Saccoghani wrote, “Distribution for the iPhone, at ~240 carriers, is significantly lower than Samsung and Nokia, which have essentially global distribution, and Blackberry, which is distributed by >2x the number of carriers. By contrast, the iPad has stronger global distribution through Apple stores, carrier partners and network of resellers, including third-party retail outlets (e.g., Best Buy, Wal-Mart, carrier stores) and third-party websites (e.g.,Amazon.com).”

The analyst pointed out that Apple has an advantage in the tablet market to maintain its market share compared with the smartphone market if it is willing to lower its price for its devices. He cited that Apple Inc. (NASDAQ:AAPL)’s introduction of the iPad Mini showed the company’s apparent willingness to offer a lower priced device in the tablet market.

Saccognaghi said, “If Apple’s market share was 20% in FY14, or more in-line with smartphone share, we see downside to our revenue and EPS estimates of 10% and 6%, respectively. We see this scenario as highly unlikely. The other, more plausible, downside scenario is if a greater share of iPads shift to Minis with a lower ASP (and modestly lower gross margin). We expect a roughly 60/40 split in favor of the Mini in FY 2014. If all iPad sales were Mini in FY 2014, we see downside to our revenue and EPS estimates of 2% and 3%, respectively. Each 10 p.p. shift in mix towards the Mini impacts revenue and EPS by ~60 bp.”