Why The iPad 3 Is Irrelevant

| About: Apple Inc. (AAPL)

So far Apple (NASDAQ:AAPL) has been the undisputed leader in the tablet wars since it reinvented and mass marketed the touch screen tablet. As is the case with the iPod, iPhone and the Macbook, one of the secrets of Apple’s success is the timely release of new versions of its products which help the company keep the hype up and fend of the competition. This strategy, however, runs into serious problems with market saturation. While it is easy for early versions to reach the early majority and therefore make it to the mass market, it becomes increasingly difficult for later versions to follow the same path - especially if later versions are not radically different than the previous.

What is the case with the iPad 3?

Apple plans to officially launch the new iPad 3 in early 2012, according to a recent article by the WSJ. The company has been ordering parts and supplies to make around 1.5 million iPad 3 in the coming fourth quarter. The key difference between the iPad 3 and the iPad 2 will be a newly updated retina display screen, sporting a resolution of 2048 x 1536 compared to 1024 x 768 - doubling the pixel density while keeping the same 9.7” screen. But, is this new feature sufficient enough to capture the interest of early majority? Or will it remain a toy in the hands of the pioneers, adding little to Apple’s bottom-line?

The answer to these questions depend on how well Apple fares in China, where the market has not reached the same degree of saturation as the United States or Europe. Tapping into the Chinese market won’t be that easy - the company has already encountered many imitation and counterfeiting problems (including its own stores).

But, does it really matter whether China comes to the rescue of the iPad 3? I don’t think so. The biggest moneymaker for Apple is not another version of a previous product, but the release of a new product line that overshadows the previous (e.g. iPod to iPhone to iPad); a crucial capability that Apple's competitors such as Hewlett Packard (NYSE:HPQ) and Research in Motion (RIMM) are missing.

Bottom Line

Apple’s success with the iPad 1 and 2 doesn’t guarantee success for the third. But this shouldn't deter long term investors. Apple's greatest capability is its unstoppable innovation force - the release of new product lines that overshadow the previous.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.