Apple isn't losing much sleep over Amazon's Kindle Fire and in fact believes such low-priced tablets could ultimately bump up demand for the iPad.
At least, that's the take from one of the J.P. Morgan analysts who last week met with Apple CEO Tim Cook and Chief Financial Officer Peter Oppenheimer to discuss the competitive tablet market.
In an investor's note released Friday, analyst Mark Moskowitz said that Apple expressed "confidence" in its ability to continue to lead the market and appeared unconcerned about lower-cost tablets. Even further, the company seems to believe that such rivals could steer more business its way.
"If anything, we think that Apple views the Kindle Fire as a device that stands to bring incremental consumers to the tablet market, and here, these consumers could gravitate to more feature-rich experiences," Moskowitz said.
J.P. Morgan has also discounted the impact from the first-generation Fire and other tablets as failing to match the iPad in overall user experience.
"Recall, it has been our view that low-priced, reduced feature-set entrants, such as the Kindle Fire, are soap box derby devices stuck between a tablet and e-reader," Moskowitz added. Meaning, we are not concerned much about competitive pressures until the second or third generations."
The Kindle Fire, which was released last month, has lit up the market, according to several reports, prompting some analysts to boost their forecasts for the new tablet. (Amazon has not released figures for shipments or sales of the device.)
DisplaySearch analyst Richard Shim now estimates that Amazon will ship as many as 6 million Fire tablets this quarter, up from 4 million previously. IHS iSuppli sees the Fire becoming the second-most popular tablet in the world, behind only the iPad.
But a new report from Chitika points to demand for the Fire cooling off after an initial surge. Echoing J.P. Morgan's analysis, the ad network believes the Fire's limited features could prevent it from becoming a major competitor over the long term, certainly when up against the iPad.
J.P. Morgan last week trimmed its fourth-quarter sales estimate for the iPad to 13 million from 13.3 million, due mostly to limited growth in production and partly to competition from the Fire. But after meeting with Apple executives, Moskowitz said he now sees the forecast as too cautious and believes the company will be able to increase sales momentum for its tablet.
Beyond the iPad, the iPhone 4S also continues to experience heavy sales, with Apple even acknowledging challenges in keeping up with demand.
"In our meeting, management referenced ongoing supply constraints related to the iPhone, which did not exist prior to the 4S launch, as a sign post of the product's success," Moskowitz said. "The company also stated that the free iPhone 3GS is a good dynamic for the iPhone family. While the 3GS is not the top seller in the iPhone family, according to management, it is introducing Apple's products to a wider audience of customers."
Overall, Apple's strong product portfolio and growing expansion overseas should keep the company in a dominant position for the foreseeable future, according to J.P. Morgan.
"Key drivers include increasing sales momentum in iPhone and iPad, as well as sustainable market penetration with the Mac, particularly MacBook Air, "Moskowitz noted. "Geographically, Asia and Latin America also offer significant, multi-year growth opportunities. Add in iTunes and iCloud, and we think that Apple's digital 'way of life' underpins a formidable moat to fend off competitive and economic challenges."