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Seriously, Apple (NASDAQ:AAPL), what are we supposed to do with this?

The tech giant has expanded upon its top-of-the-line tablet with yesterday's release of a 128GB iPad, and the whole thing feels a bit strange. It came out of nowhere; most Apple launches are leaked weeks in advance and follow intense speculation, but the level of secrecy here is impressive. "Sneak attack!" marveled Apple Insider users the morning of the launch. Clearly, this is a move that Apple feels is of very high importance.

Why, though? Who needs a 128GB iPad?

This isn't so much a bit of rhetorical snark, but a genuine attempt to figure out a puzzle. What does a tablet with this kind of capacity (four times the storage of the Samsung (PINK:SSNLF) Galaxy Tab 2, for example) offer to consumers, especially at the nosebleed price of $799 (or $929 with LTE)?

There are two branches of possibility, and both likely contain a bit of truth.

The first possibility is that Apple is joining Microsoft (NASDAQ:MSFT) in the opinion that the replacement of PCs by tablets will come sooner rather than later. PC sales had a lousy holiday season, dropping 6.4% from the same period last year, and while Microsoft's Surface RT has met with a lukewarm response from consumers, one imagines that the design wizards at Apple might be able to give us a prettier and more functional integrated keyboard.

But does Apple even need to try to replace the PC? It may be doing so already. Carol Hayer, an iPad user from Connecticut, says her first-generation iPad has become the device she uses for everything but home printing. "I don't want to pay for a machine that does the same things if it just looks and feels better," Hayer says. "I can do everything on it: e-mail, news, research."

Michael Sorosky, a professional poker player from Las Vegas, says he keeps his laptop "as backup if nothing else," adding as an afterthought, "so I should probably get a keyboard for my iPad." Sorosky has a 64GB iPad at the moment, but he's excited about the 128GB model: "I wouldn't upgrade for no reason," he says, "but if mine breaks, I'd buy the 128GB."

People may not, on paper, be abandoning laptops for tablets entirely. In practice, though, the tablet is certainly becoming the primary device for many consumers. By introducing a tablet with the capacity and price of a laptop, Apple may be testing the waters for an eventual laptop-killer. Analysts like Forrester's David Johnson have pointed to ways that Apple has started optimizing content-creation apps for iOS; one of the main obstacles to total tablet dominance, according to IDC analyst David Daoud, is that creating content on them is too difficult.

The second possibility is that Apple, by introducing a ludicrously high-priced tablet, is actually making a desperately-needed move down the pricing pole. At the moment, the new iPad is obviously far too expensive for most tablet users, but within a year, there'll almost certainly be a price reduction.

When that happens, I predict that Apple will not eliminate the 16GB iPad but rather continue to cut its price to make it available as a low-cost iPad. Imagine the havoc a full-sized 16GB iPad could wreak on the tablet market at, say, $249. Compare that to a Galaxy Note tablet at $499 or a smaller Google (NASDAQ:GOOG) Nexus 7 for the same price.

This all follows rumors that the company has been developing a low-cost iPhone, a move that analysts have long recommended. Apple is a cool company with flashy products, but it has ignored entry-level consumers for too long. With the introduction of ultra-affordable notebooks like the Chromebook, other companies are leading the charge downward.

Apple needs to make at least a good-faith effort along the same path or be saddled with the "elitist" tag forever, and the 128GB iPad could be the first step in the right direction.

This article by Jonah Loeb published on Minyanville.

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Disclaimer: The views represented on this blog are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.


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