Can iPad 2 Hold the Line Against Charging Competitors?

| About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL), known for its ability to bring innovative products to market, recently unveiled the newest member of its tablet family, the iPad 2. [1] iPad 2 has a few superior features over its predecessor, including a faster A5 processor as well as front and rear facing cameras. The new product is also lighter and thinner than the original. Apple has established itself as the dominant player in the tablet market, but 2011 could bring more meaningful competition to Apple with players like Research in Motion (RIMM), Motorola Mobility (NYSE:MMI), Samsung, Dell (NASDAQ:DELL) and LG jumping onto the tablet bandwagon.

Here we take a look at Apple’s competitive position in the tablet market, and examine whether the iPad 2 can help Apple ward off new challengers. We estimate that iPad sales account for roughly 7% of Apple’s stock value, which we peg at $420. Our price estimate currently stands about 17% ahead of market price.

If the iPad 2 can help Apple keep competitors’ tablets at bay, our forecasts for iPad unit sales could prove conservative, implying upside to our $420 price estimate for Apple.

Tablet Market Competition Heating Up

Apple sold around 15 million iPads in 2010, and we estimate that it could sell another 24 million in 2011. We project that this total will continue its steady climb towards 54 million by the end of our forecast period.

Chart created using Trefis' app

According to IDC, the tablet market is expected to grow from around 45 million units in 2011 to 71 million in 2012, [2] and Apple’s market share could reach 60% in 2011. [3] This implies an expected 27 million iPads sold in 2011. Although our 24 million unit estimate seems a little conservative by comparison, we believe that Google’s (NASDAQ:GOOG) new Android operating system for tablets (Honeycomb) could pose a meaningful challenge to Apple.

We mentioned this concern in our recent note titled Google Brings Honeycomb to the Frontlines of OS Wars. On top of this, Research in Motion is expected to launch its PlayBook tablet in March 2011, and could leverage its dominant position in the enterprise segment to accelerate penetration of the tablet market (See Can RIM Leverage its Enterprise Market Presence to Lift Tablet Sales?). These factors will heighten competition in the tablet market and pose a threat to Apple’s position atop the hill.

Can Apple Ward Off Competition with the iPad 2?

As we’ve mentioned, the iPad 2 is a step up from the original iPad, with a sleeker design and faster processing speed. The introduction of front and rear cameras also allows users to make visual “FaceTime” calls, a functionality that Apple originally introduced in the iPhone 4.

The iPad 2 also compares favorably to Motorola Mobility’s Xoom tablet in a few key metrics. The chart below highlights specifications for the iPad 2 vs. the Xoom, as detailed by Business Insider. [4]

(Click to enlarge)

Notes:

  1. Apple press release: Apple Launches iPad 2, March 2011
  2. IDC: Tablet market forecast, January 2011
  3. Market share prediction done by Susan Kevorkian, a research director at IDC
  4. Business Insider: How Xoom Stacks up Against iPad 2, March 2011

Disclosure: No positions