An new iPad 3 is held to show its light weight and thickness during a special event at the Yerba Buena Center for the Arts in San Francisco on Wednesday, March 7, 2012. Apple releases it's third-generation iPad just 25 months after starting the tablet-computing revolution. (Gary Reyes/ Staff)
NEW YORK -- Apple (AAPL) certainly has lots of buzz and corporate cache behind its products, but there's a hidden -- almost mundane -- reason its newest iPad is likely to dominate the competition: the advantageous deals the company cuts with components manufacturers.
Apple's size, and the fact that the iPad shares components with the highly popular iPhone, means that the Cupertino company can buy crucial parts such as processing chips and display screens at lower prices. Any company that wants to make a tablet computer that matches the iPad's $499 starting price has to endure higher costs.
As a result, Apple's tablet-making competitors have flailed -- and failed. And with the new iPad, Apple is expected to extend its 62 percent market share in the tablet computer category it created. IMS Research expects Apple to capture 70 percent of the market this year.
A year ago, scores of companies all thought they had a shot at emulating Apple's success. As the year progressed, those dreams crumbled. The iPad 2, launched in March, proved nearly unassailable.
A big part of the reason was that Apple has priced the iPad aggressively. At just under $500 for the basic model, Apple's profit margin on the device is lower than on the iPhone, a smaller device for which it charges phone companies
a wholesale rate of $600 or more.On Wednesday, Apple stuck to that price point when it unveiled the new iPad model. It has a screen that displays sharper images and deeper, more vibrant colors to set it apart from the competition. The new tablet goes on sale March 16 in the U.S. and several other countries.
Because it produces tens of millions of iPads and uses some of the same components as the highly popular iPhone, Apple can buy crucial components such as chips and displays at lower prices.
According to research firm IHS iSuppli, Apple is the world's largest buyer of the microprocessor chips that serve as the "brains" of various devices. In January 2011, Apple said it had spent $3.9 billion on long-term contracts to secure supplies for two years of a "very strategic" component it wouldn't name. Few other companies are able to commit that much money.
Many suppliers are happy to sell to Apple, given the company's success in mobile products. ARM Holdings, a British chipmaker that licenses the technology used in iPhone and iPad chips, for instance, saw its stock rise nearly 4 percent Thursday, a day after Apple unveiled iPads with faster processors. Other Apple suppliers, including Cirrus Logic, Jabil Circuit and Skyworks Solutions, have all experienced healthy stock gains in recent months. On Wednesday, Apple said it would keep the iPad 2 in production and cut the starting price to $399 -- the same price as Samsung's Galaxy Note Tab 10.1.
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