Technology: As competitors pop up, iPad keeps price advantage Apple's profit margin on tablet computer is lower than on its other products

By Peter Svensson AP Technology Writer NEW YORK (AP) -- The new iPad model that hit stores Friday comes with several improvements over the original version but the same price tag, hobbling efforts by rivals at breaking Apple Inc.'s hold on the emerging market for tablet computers. Competitors such as Motorola Mobility Holdings Inc. can't seem to match the iPad's starting price of $499. Tablets that are comparable to the iPad in features cost hundreds of dollars more, while cheaper tablets are inferior to the iPad in quality. Usually, the early products in consumer electronics, such as the first Blu-ray players or digital cameras, are expensive. Competition then gradually brings prices down. With the iPad, the reverse is happening, spelling trouble for competitors. It's rare for prices to start low and stay low, yet it looks as if that's exactly what Apple intended. Apple appears to have chosen, right from the start, to make less of a profit from its iPads than it does from iPods and iPhones. That's an odd move for a company that isn't known for cheap products. Apple's profit margin on the $499 entry-level iPad model is about 25 percent, according to an estimate by Toni Sacconaghi at Bernstein Research. By contrast, the company's profit margin for all products, before corporate overhead, was 38.5 percent in the most recent quarter. He and other analysts estimate the margin for the iPhone 4 is 50 percent to 60 percent. (Apple charges about $600 for it, though it's cheaper in stores because wireless carriers subsidize it.) Apple is telling investors to expect overall margins to keep declining, meaning competitors can't expect much of a reprieve. There are cheaper tablet computers available, but they don't perform as well -- with poor screens, poor touch sensitivity and poor software, and overall slowness. Archos sells a tablet that's roughly iPad-sized for $370. Reviewers at CNET and Laptop Magazine say its screen washes out unless you're right in front of it, and it has problems sensing touch. A tablet that can match the iPad 2 in quality and features costs much more. For example, Motorola's Xoom sells for $800, or $600 if the buyer agrees to a two-year data service contract with Verizon Wireless. The iPad 2 with the same amount of memory -- 32 gigabytes -- and cellular data capability on AT&T's or Verizon's network costs $729, no contract required. The Galaxy Tab from Samsung Electronics Co. is half the size of the iPad, yet costs $500. And that price is only available if the buyer pays an activation fee and signs up for at least one month of data service from Verizon, at a minimum total cost of $55. The tablet can be had for as little as $300, but that requires two years of data service, or hundreds of dollars in fees. Some 100 different models of tablet computers have already gone on sale or are on the way. Gartner Inc. project that 65 million tablets will be sold worldwide this year, and analysts expect the bulk of them will be iPads. Apple sold 15 million of the original iPad in its first nine months on sale. Analysts say Apple has a couple of advantages that let it sell an iPad profitably at a price that would put another manufacturer at break-even, or at a loss. Apple sells about a third of iPads in its own stores and from its website. By cutting out the middleman, Apple is able to keep more of the slim profit margin for itself. Also, the iPad uses many of the same chips as iPhone and iPods. That means Apple is able to buy them in huge quantities, bringing down costs. Published: Mon, Mar 14, 2011