Will The iPad Mini Help To Expand The 7" Tablet Market?

| About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) released the news Tuesday that they are launching their own smaller tablet to compete with Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN). When announcing the iPad Mini, Apple put up a side-by-side display between it and the Nexus 7. Apple clearly sees the 7" tablet market as something it wants to get into and dominate as they do in the larger tablet market. Recently IDC has raised their forecast for tablets from 107 million to 117 million units for 2012. The tablet market is growing fast and IDC is even forecasting over 165 million units in 2013.

The 7" market was about 25% of the total market in 2011. If that percentage stays the same, which is unlikely with the Nexus 7 now in the market and the iPad mini among other smaller tablets, the number of 7" tablets would be around 40 million units. Apple currently has about 60% of the tablet market locked down and that is not expected to change anytime soon. This means that in 2013, Apple can be expected to sell about 24 million 7" units if the market share stays the same. This is assuming that the iPad mini will be able to sell in the same market as the other 7" tablets. So far consumers have shown that they will pay a premium for Apple products.

Tablet sales figures are very hard to find and most are not clearly reported. With the Apple vs Samsung (OTC:SSNLF) trial this summer we did get a rare inside look into Apple's sales numbers. Notice that 2Q 2010 was debut and numbers go until Q2 2012.

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The numbers show that as expected the tablet sales show significant gains in the fourth quarter. Apple is already on pace to sell about 20 million tablets this year. If we split the smaller tablets and regular tablets into two separate markets we can further analyze the numbers. The 20 million tablets for FY2012 is expected to be for only the regular size tablet. If we take a look at the Nexus 7 estimated to have sold between 800k and 1 million units in its first quarter and the Kindle Fire HD as Amazon's "top-seller" the market looks ready for the iPad mini to take center stage.

The specifications for the iPad mini are very similar to the Nexus 7. As usual Apple seems to be able to pack more into a device but at the same time lighter and thinner. The Nexus 7 display is 7" whereas the iPad mini is 7.9". The Nexus 7 is WiFi only whereas the iPad mini has WiFi plus date coverage through AT&T, Verizon (NYSE:VZ), and Sprint (NYSE:S). The Nexus 7 on paper should be faster with a quad core Tegra 3 versus a dual core A5 on the mini.

One advantage to the iPad mini is that it has a front facing camera and a rear facing camera. It was kind of awkward holding up the larger iPad and attempting to take pictures with it but it should be slightly less awkward with the smaller version. I would not use the rear facing camera often but with the Nexus 7 I do not even have the option. The Nexus 7 starts at $199 and the iPad mini starts at $329 and 8GB/16GB storage versus 16GB/32GB/64GB respectively. In conclusion, they are rather similar tablets only really the roaming internet and the premium purchase price for the Apple product.

Mapping out the size of the potential market is the first thing that should be done after a product launch. As you can see in the above graph, Q4 is usually the biggest quarter for tablet sales because of the holidays. Apple has earnings scheduled for October 25, 2012 and this might present a great opportunity to get in before the iPad mini sales start taking off.

The stock has already fallen a bit from the high of $700. If the stock hits $575 it would fall to a low not seen since late July. In my opinion this would be a great point to get in for a holiday bounce. Apple is launching a brand new product and not just an update of an old one, this should draw a lot of interest.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.