The company unveiled the iPad Mini on Tuesday, with a screen about two-thirds the size of the full model, and half the weight. Customers can begin ordering the new model on Friday. In a surprise, Apple also revamped its flagship, full-sized iPad just six months after the launch of the latest model.
Apple's late founder Steve Jobs once ridiculed a small tablet from a competitor as a "tweener" that was too big and too small to compete with either smartphones or tablets. Now Apple's own Mini enters a growing small-tablet market dominated by Amazon.com Inc.'s Kindle Fire.
Apple is charging $329 and up for the Mini - a price that fits into the Apple product lineup between the latest iPod Touch ($299) and the iPad 2 ($399). Company watchers had been expecting Apple to price the iPad Mini at $250 to $300 to compete with the Kindle Fire, which starts at $159. Barnes & Noble Inc.'s Nook HD and Google Inc.'s Nexus 7 both start at $199.
"Apple had an opportunity to step on the throat of Amazon and Google, yet decided to rely on its brand and focus on (profit) margin," said Bill Kreher, an analyst with brokerage Edward Jones.
Apple shares fell $20.67, or 3.3 percent, to close at $613.36 after the price was announced. Shares of Barnes & Noble jumped 88 cents, or 6.1 percent, to $15.32. Shares of Amazon rose 53 cents, or 0.2 percent, to $234.31.
Apple has sold more than 100 million iPads since their debut in April 2010. Analysts expect Apple to sell 5 million to 10 million iPad Minis before the year is out.
Apple starts taking orders for the new model on Friday. The iPad Mini will be competing for the attention of gadget shoppers with the release that same day of computers and tablets running Windows 8, Microsoft's new operating system.
Wi-Fi-only models will ship on Nov. 2. Later, the company will add models capable of accessing cellular, LTE data networks.
The screen of the iPad Mini is 7.9 inches on the diagonal, making it larger than the 7-inch screens of the competitors. It also sports two cameras, on the front and on the back, which the competitors don't.
The iPad Mini is as thin as a pencil and weighs 0.68 pounds, half as much as the full-size iPad with its 9.7-inch screen.
The screen resolution is 1024 by 768 pixels, the same as the iPad 2 and a quarter of the resolution of the flagship iPad, which starts at $499.
The new model has better apps and is easier to use than competitors such as Google's Nexus, said Avi Greengart, a consumer electronics analyst with Current Analysis.
"This really is not in the same category as some of the other 7-inch tablets," he said. "And that's before you consider that it has a premium design - it's made of metal that's extremely lightweight."
Jobs attacked the whole idea of smaller tablets in his last appearance on a conference call with analysts in October 2010.
"The reason we wouldn't make a 7-inch tablet isn't because we don't want to hit a price point. It's because we don't think you can make a great tablet with a 7-inch screen," Jobs said. "The 7-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad."
Job's chief objection was that a smaller screen would make it hard to hit buttons on the screen with the fingers - never mind that Apple's iPhone, with an even smaller screen, was already a hit at the time.
Apple senior vice president Eddy Cue started working on changing Jobs' mind. In an email sent to other Apple managers in January 2011, Cue said the CEO had started warming to the idea of a smaller tablet. The email surfaced as part of Apple's patent trial against Samsung Electronics Co. this year. Jobs died last October.
Company watchers have been expecting the iPad Mini for a year and most of the details, except the price, had leaked out.
Apple also said it's upgrading its full-size iPad, doubling the speed of the processor. Previously, the company has updated the iPad once a year.
The fourth-generation iPad will have a better camera and work on more LTE wireless data networks around the world. Apple is also replacing the 30-pin dock connector with the new, smaller Lightning connector introduced with the iPhone 5 a month ago.
The price of the new full-size model stays the same as the previous version, starting at $499 for a Wi-Fi-only version with 16 gigabytes of memory.
Apple also introduced a 13-inch MacBook Pro laptop with a Retina display sporting four times the resolution of the older model.
The new model, which follows a 15-inch MacBook Pro with a Retina display introduced in June, goes on sale Tuesday for $1,699.
The old MacBook Pro will still be sold, starting at $1,199.
The new model dispenses with an optical disc drive and a traditional hard drive. Instead, it uses solid-state flash memory. This makes it 20 percent thinner and at 3.75 pounds, nearly a pound lighter than the previous model.
Apple also eliminated the optical drive from its new iMac desktop computer, helping slim the edges down to 5 millimeters, one-fifth the thickness of the old model. That makes the edges thinner than most stand-alone computer monitors. It bulges in middle of the back, however.
An iMac model with a 21.5-inch screen will start shipping in November for $1,299 and up. A 27-inch version will start at $1,799.
Svensson contributed from New York.