Tablet PC Price Wars Explode as Carnage Looms

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Apple (NASDAQ: AAPL) may be able to hold on to the market share the iPad has in the U.S. The battle for the second, third and fourth places has become more bloody in the past several days. Lenovo has launched a tablet PC that will test how low companies are willing to price products to get a portion of the market.

The new Lenovo IdeaPad will retail for $199. That is well below the $499 Apple charges for its basic iPad. The Samsung Galaxy Tab has a new version that sells for $600. The South Korean company has taken the chance that its relatively popular product can command a high price.

The sector has been even more fragmented by recent tablet PC launches from Sony (NYSE: SNE) and Acer. Amazon.com (NASDAQ: AMZN) is expected to release its tablet within the next few months.

Analysts believe that many new tablets will sell for so little that companies will lose money on the products. Experts say that Hewlett-Packard (NYSE: HPQ) lost over $200 per unit on its TouchPad, which has been discontinued. Lenovo probably will lose more than that on its IdeaPad, if its price and estimated costs-of-goods sold are a fair measure.

The trouble with the plan to sell tablets at a loss is that the consumer becomes used to connecting a low price to a specific product. Apple has “trained” customers to pay between $499 and $899 for the iPad. It has not had to discount to hold its place in the industry. Over time, Lenovo probably cannot escape the perception that it offers a bargain product. That will make it nearly impossible for it to move the price up by $100, or even more, to break even.

If the e-reader market is a precedent, prices for tablets will drop over the next several quarters. That will leave Lenovo with no place to go to make money.

Douglas A. McIntyre