The following video is from this week’s installment of The Motley Fool’s Weekly Tech Review, in which Alison Southwick sits down with analysts Eric Bleeker and Lyons George to look at the biggest stories driving the tech sector this week.
In this segment, Eric and Lyons look at the cutthroat pricing battles in the tablet market as detailed this week in the Financial Times. While American consumers might be wowed by cheap tablet pricing such as Apple Inc. (NASDAQ:AAPL)‘s iPad Mini at the $330 price point, or Google Inc (NASDAQ:GOOG)‘s Nexus 7 at $200, or Hewlett-Packard Company (NYSE:HPQ)‘s Slate 7 tablet at $140, those “cheap” prices are nothing compared with the tablet battles in China.
Inside China, a crash below the $50 barrier has unleashed a massive tablet boom. How are companies doing this? For one, local processor companies have created “good enough” designs that sell for a fraction of the price of high-end designs from NVIDIA Corporation (NASDAQ:NVDA) and QUALCOMM, Inc. (NASDAQ:QCOM). On its budget-priced Slate 7, Hewlett-Packard Company (NYSE:HPQ) used a design from Chinese chip designer Rockchip. When Hewlett-Packard Company (NYSE:HPQ) tried to sell its TouchPad tablet for prices starting at $500 in 2011, it used a QUALCOMM, Inc. (NASDAQ:QCOM) design. Perversely, low-cost tablets are also cutting costs by salvaging memory from PCs.
The end result is that booming global tablet sales might not translate to much profit for investors; there’s little money made in a $50 tablet selling at cutthroat pricing. Chip companies are facing pressure from Chinese designers whose prices they can’t match. Top-end designs in America will still use QUALCOMM, Inc. (NASDAQ:QCOM) or NVIDIA Corporation (NASDAQ:NVDA), but all the same these companies also aren’t competitive in the fast-growing low-end segment of cheap tablets.
Likewise, as price competition intensifies in the U.S., it’s bad news for hardware companies. A company like Hewlett-Packard Company (NYSE:HPQ), which is belatedly making another attempt at finding tablet success, enters a field far more competitive than it was a couple of years ago. Likewise, a company like Amazon.com, Inc. (NASDAQ:AMZN), which succeeded in part from selling Kindles below most competitors’ pricing, is about to get more competition.
This is all great news for consumers, and bad news for investors hoping to find profitable plays in tablets. To hear Eric and Lyons’ full thoughts, and some companies that could actually benefit from cheap tablets, watch the video.
The article The Bloody Battle for $50 Tablets originally appeared on Fool.com and is written by Eric Bleeker, CFA, Lyons George, and Alison Southwick.
Alison Southwick and Lyons George has no position in any stocks mentioned. Eric Bleeker, CFA, owns shares of NVIDIA. The Motley Fool recommends Amazon.com, Google, and NVIDIA and owns shares of Amazon.com, Google, and Qualcomm.
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