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Should Apple Inc. (AAPL) Fear the New Low Cost Tablet From Hewlett-Packard Company (HPQ)?

Competitors have been closing the quality gap against the iPad lately, which is the natural thing to expect in the tech industry. Innovators develop a new and disruptive product that brings something unique to the market; this means disproportionate market share gains in the first stages. Over time, other companies start offering competitive alternatives, both in terms of price and quality, and this usually means that the market participation becomes more fragmented.

None of this means that Apple will stop growing though, only that Android tablets will grow proportionally faster than the iPad, which is a very different thing. Many of those low cost tablets are sold at razor thin or even negative profit margins, so the comparison between Apple and its low cost competitors is not entirely fair. While other companies may be gaining market share, Apple is still the undisputed profitability leader in tablets.

Apple has accepted a lower profit margin with the iPad Mini versus previous iPad models, and the device has been selling faster than it could be manufactured during the holiday quarter. There is really no compelling reason for Apple to move lower on the pricing scale since demand for the iPad Mini is already booming at current prices.

Apple sells premium products for premium prices, it’s not only abut technological advantages but also design, brand loyalty, and the stickiness created by services like iTunes. In fact, higher prices create brand differentiation, and they can even be a positive marketing attribute for some clients.

In an ideal world for Apple, the company would forever be the quality leader and the cheapest alternative in the space; such was the situation in 2011 when the iPad was in its first stages and it had a market share above 90%. But that kind of scenario doesn’t last for too long in a competitive industry, and this still doesn’t mean that there is anything wrong with Apple: as long as the company remains strong in the high end of the market, it will still be able to generate solid returns for investors.

Bottom line

The new Slate 7 from HP still needs to prove that it can effectively compete in the low end of the market, since lower prices are no guarantee of success on a standalone basis. Even if it manages to do that, it would still mostly affect other Android tablets manufacturers like Amazon and Asus, Apple is just playing a different game.

The article Should Apple Fear the New Low Cost Tablet From HP? originally appeared on Fool.com and is written by Andrés Cardenal.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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