Will You Buy a Cheaper iPad?

Reports of a scaled-down iPad with a 7.85-inch screen have been circulating widely just before the anticipated release of the iPad 3. There are a lot of implications, including the idea that Apple Inc. (Nasdaq: AAPL) will be churning out less expensive devices, despite the wage increases at Foxconn Electronics Inc. But for EBN's audience, the real questions are about supply, demand, and timing.

Let's recap the events:

• September 2011: Amazon launches the Kindle Fire at $199. (See: Is Hardware's Loss Retail's Gain?)
• Feb. 14, 2012: Reports say Apple is designing iPads with smaller screens. (See: Behind Apple's Alleged Move to Small Screens.)
• Feb. 28, 2012: Apple sends out invitations to a company event, believed to be the iPad 3 release.
• March 1, 2012: Digitimes reports that volume production of the smaller iPad will begin by the third quarter.

The anticipated price point of the 7.85-inch iPad is $249 to $299, Digitimes reports. Apple is clearly trying to take share away from the low-cost tablets offered by Amazon.con and Barnes & Noble.

Apple already commands 60 percent of the tablet market, according to IHS iSuppli. Its biggest competitor in the fourth quarter of 2011 was itself -- iPhones ate into iPad sales, IHS iSuppli says. (See: Smartphone Surge Heralds End of Tablet Era?)

What kind of demand would there be for a 7.85-inch iPad? I think that, left to its own devices (pun intended), the smaller tablet would be a huge seller. The third quarter is the ramp-up for holiday sales, and Amazon.com showed just how profitable good timing can be with the Kindle Fire. Anyone shying away from the high price of the iPad in 2011 could certainly justify waiting a year to spend $249.

But the biggest problem with this scenario is Apple itself. If, as expected, it releases the iPad 3 next week, what will this do to demand? If consumers follow their typical pattern, they'll line up immediately for the iPad 3. These consumers presumably would be people who do not own an iPad 2.

Or would they be? Apple "fanboys" will buy any Apple product at any time for any price.

Assuming Apple already controls 60 percent of the tablet market, it still needs to reach the other 40 percent. Is this group made up of people who own other tablets? Or do they own no tablet at all?

As a nonowner, my inclination is to wait for the cheaper iPad. Normally, I'd want the biggest screen possible, but the current iPad price is still too steep for me. There are advantages to a smaller tablet, including portability. I'd still have to drag it out at airports, along with my laptop. But that's another issue altogether.

There is still a possibility, though unlikely, that the iPad 3 will be smaller and sell for less than the iPad 2. But if that were the case, why bother with the $249 iPad at all?

And just to confuse matters further, Digitimes reports that Apple is also expected to release an 8GB iPad 2 for $349-$399, and that it has lowered the price of the 16GB iPad 2 to $449.

This is all good news for the component suppliers on Apple's vendor list. (See: Who's on Apple's Supplier List?)

Apple -- which now has a market cap bigger than the GDP of some nations -- is clearly ramping up production. Once a component is sold, whether to Apple or an EMS, suppliers book it as a sale. It is very difficult to return a product to a supplier, unless there is a clear defect.

For component suppliers not on the list, this could still be a boon. The events of 2011 have taught the supply chain that single sourcing is a dangerous game. Apple should always have at least two sources for the components it uses. If cost is a factor, suppliers should be looking to develop comparable, lower-cost parts to get a foot in Apple's door.

This will no doubt spur Amazon, B&N, and Samsung to provide even less expensive or differentiated tablets. If there is any downside to all of this, it's to Apple. How long can a company compete against itself? Is the iPhone the real threat to the iPad? I really don't know. I'll be holding on to my phone until my next upgrade comes along. But I'd like to ask those Apple fans out there what they think. Will you buy a cheaper iPad?

I probably will.