By Adam Satariano
SAN FRANCISCO —
Apple is upgrading its iPad lineup to fend off a growing list of competitors, which are introducing their own tablets at lower prices with snazzier features.
Chief Executive Officer Tim Cook will debut a high- definition iPad mini and a thinner iPad at an event here Tuesday, people with knowledge of the plans have said.
Facing two straight quarters of declining profit and a stock that's down by more than a quarter from a September 2012 record, Apple is facing a similar challenge with the iPad as it has with the iPhone, battling lower-cost rivals and proving that incremental changes to existing products are enough to draw customers. The iPad is Apple's second-best selling gadget after the iPhone and the new models will be critical as the company seeks to reignite growth.
"Tablets are a maturing market," said Sarah Rotman Epps, an analyst at Forrester Research Inc. in San Francisco. "It will be difficult for Apple to move the needle on new tablet sales, as the strongest growth is coming from emerging markets where customers are more price sensitive."
Apple saw its share of the tablet market contract to 32 percent in the second quarter from 60 percent a year earlier, according to researcher IDC. While iPad sales more than doubled every quarter since the 2010 debut, growth of the devices hasn't topped 66 percent since mid-2012.
Trudy Muller, a spokeswoman for Apple, declined to comment ahead of the event. Cook has said market-share data alone isn't the best way to judge success.
"Customers continue to love their iPads," Cook said in July, citing data from analytics firm Chitika Inc. showing that that the iPad makes up 84 percent of Web traffic from tablets.
Samsung Electronics Co., Asustek Computer Inc., Lenovo Group Ltd., Acer Inc. and other competitors are challenging Apple, offering devices with prices starting at less than half of the iPad mini's $329. Amazon.com Inc. introduced a new Kindle Fire lineup last month with higher-resolution screens at prices starting from $229.
While tablet shipments doubled to 166 million globally in 2012, Counterpoint Research projects that the growth rate will slow to 28 percent in 2014, to 301 million units.
Apple is upgrading its top-selling products ahead of the holiday shopping season. The Cupertino, California-based company introduced the iPhone 5s and 5c last month, selling more than 9 million in its opening weekend. The iPad and iPhone accounted for about 70 percent of Apple's revenue last year.
The company will also show new Mac software and a new Mac Pro high-end desktop computer at tomorrow's event, a person with knowledge of the plans has said.
Even as tablet sales growth slows, the industry shift that's been under way since Steve Jobs unveiled the iPad in 2010 shows no signs of abating. Microsoft Corp., Intel Corp., Hewlett-Packard Co. and Dell Inc. are grappling with shrinking demand for their computer software and hardware as consumers and businesses move more day-to-day tasks to handheld devices.
"The tablet market is going to be bigger than the traditional computing market," said Horace Dediu, a market researcher who runs Asymoco.com. Customers prefer an iPad to browse the Web, send e-mail and watch online videos, he said.
Schools, pharmaceutical sales forces and insurance companies are among those using iPads instead of personal computers. Nintendo Co. and other video-game companies have also seen weaker sales as people use the tablets to play games.
"When the iPad first came out, people saw it more as a consumption device for watching movies or reading books, but now people are actually using them as laptop replacements, like a real computer, and that's just going to continue," said Giri Cherukuri, head trader for OakBrook Investments LLC, which manages about $3.5 billion, including Apple shares.
The tablet market is "nowhere near maturing" and there's pent-up demand for new iPads, Cherukuri said. Even if Apple's market share declines, the company is the "clear winner" because it makes more profit on each device.
With more consumers buying tablets, PC shipments fell 8.6 percent in the third quarter to 80.3 million shipments, Gartner said Oct. 10. That's the lowest level for the period since 2008.
Apple's success in navigating the trend it triggered with the debut of the iPad will depend on whether it can fend off the growing number of tablets based on Google Inc.'s Android mobile operating system, similar to how Android smartphones chipped away at iPhone's lead, according to Neil Shah, research director at Counterpoint Research.
"Apple is getting into exactly the similar situation as with iPhone for its iPad," Shah said. "It's Apple against thousands of Android vendors."