Today: While unveiling its newest iPads, Apple (AAPL) exhibited a new approach to pricing its products, increasing the price of the iPad Mini while making most of its software offerings free, which could be aimed at Microsoft. Also: Netflix (NFLX) plummets after CEO doubts valuation.
The Lead: Apple increases price of iPad Mini, gives away software
Apple lived up to expectations with its launch event Tuesday, showing off a lighter, faster iPad Air and an iPad Mini with a higher-resolution screen, along with providing updates about its new personal computers and Mavericks operating system. The surprise from the Cupertino consumer-tech giant was a new approach to pricing its offerings, as Apple dropped charges for new software and updates while increasing the price of the iPad Mini, and analysts cited Microsoft as a target of the move.
Apple announced the original iPad Mini last October, and priced the device starting at $329, higher than popular smaller tablets such as Amazon's Kindle Fire and Google's (GOOG) Nexus 7, which some observers questioned at the time. Instead of bringing down the price with its next-gen device, Apple increased it, announcing a price of $399 and up for the new iPad Mini with Retina display.
"This is the clearest statement Apple could have made that it is only interested in competing in the premium tablet space," Ovum analyst Jan Dawson wrote in a note Tuesday, later adding, "This leaves a huge chunk of the tablet market unserved by Apple while others such as Google, Amazon and a raft of others aggressively target the sub-$400 market."
Benedict Evans of Enders Analysis told Bloomberg News that Apple is obviously trying to split the tablet market, with Apple at the high end and Android tablets at the low end. "Apple apparently doesn't fear much tablet competition," he said.
However, Gartner analyst Carolina Milanesi disagreed, telling Reuters that Apple's new pricing approach is an effort to thwart advances from Microsoft, which has begun offering its own tablets running Windows 8 and recently purchased hardware maker Nokia, which introduced its own tablet Tuesday morning.
"In the tablet PC market, they do think Microsoft is a bigger threat than Android," Milanesi said Tuesday. "The iPad Air will compete with Surface Pro, not some rinky-dink Android tablet."
Apple also announced that its new Mavericks OS for PCs can be downloaded for free, and updates to productivity suites like iWork and iLife and other software offerings will be free with purchase of Apple devices, while updates will be provided free to previous purchasers. That decision could be seen as a defense against Microsoft as well, with Yankee Group analyst Carl Howe telling Bloomberg that Apple's move is "challenging the Microsoft model" of charging for new operating systems.
"We are turning the industry on its ear, but this is not why we're doing it," Apple CEO Tim Cook said Tuesday."We want our customers to have our latest software."
Apple's approach also counters Amazon's strategy: The online retail giant sells its Kindle tablets at a cheap price in order to increase its customer base for the media consumed on the device, while Apple will give away important software in order to get customers to plunk down a premium for its hardware.
In the end, investors care about profits and revenues, and Apple's move could have a large effect on its financial performance, as the company's legendarily high profit margins -- trimmed by purchases of the cheaper iPad Mini -- should return to normal. Apple's share price bounced around Tuesday but closed down 0.3 percent at $519.87 as analysts predicted the company's announcements would still lead to cash registers ringing at Apple stores around the globe this holiday season.
"Between the iPad and iPhones, I think they'll have a monster holiday season," Creative Strategies analyst Tim Bajarin told the Associated Press.
SV150 market report: Wall Street gains, Netflix plummets
Stocks moved higher Tuesday, pushing the Standard & Poor's 500 to a record for the fourth consecutive day, despite a September jobs report that showed slowing growth in the labor market. While all three major U.S. indexes gained, Silicon Valley stocks declined on the day thanks to a severe slide from Netflix and weakness elsewhere.
Netflix dropped 9.2 percent to $322.52 despite immediate gains following its Monday earnings report, which showed the Los Gatos video-on-demand service increasing its customer base and quadrupling its profits year-over-year. Netflix CEO Reed Hastings noted the wild swings in Netflix stock over the past two years during Tuesday's conference call, blaming what he called "momentum investors" for "driving the price more than we like." Those "momentum investors" took the chance Tuesday to sell their shares -- after Netflix shares reached a record high of $389.16 early in Tuesday's session, the stock tumbled while volume was more than seven times the average.
Juniper Networks fell 2.4 percent to $20.36 before the Sunnyvale networking company released its earnings report, which showed profits of $99 million, or 19 cents a share, on revenues of $1.2 billion; while the results reflected strong year-over-year gains, Juniper stock dropped more in late trading, flirting with the $20 mark. Facebook dropped 2.2 percent to $52.67 after the Menlo Park social network announced that it would allow videos of beheadings to be posted to its service, and Tesla Motors (TSLA) fell 0.6 percent to $171.54 as a recent fire in a Model S sparked an investigation by U.S. regulators. eBay (EBAY) dropped 0.2 percent to $51.83 after PayPal's Bill Me Later feature was targeted by regulators; the San Jose e-commerce giant also acquired a local-delivery company called Shutl as it moves toward further expansion of its same-day delivery program.
VMware's post-earnings bounce didn't dissipate like Netflix's, as the Palo Alto software company gained 2.4 percent to $85 after revealing its quarterly performance Tuesday afternoon. Electronic Arts (ERTS) gained 3 percent to $25.23 after shuffling its release schedule, Hewlett-Packard (HPQ) increased 2.1 percent to $24.05.
The SV150 index of Silicon Valley's largest tech companies: Down 3.53, or 0.25 percent, to 1,402.71
The tech-heavy Nasdaq composite index: Up 9.52, or 0.24 percent, to 3,929.57
The blue chip Dow Jones industrial average: Up 75.46, or 0.49 percent, to 15,467.66
And the widely watched Standard & Poor's 500 index: Up 10.01, or 0.57 percent, to 1,754.67
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.