I could not disagree more vigorously; that number seems like science fiction at best. And here is why:
The only reason for a 7" iPad is to fill the gaping hole between a 3.5" iPhone and the 9.7" iPad. And the only reason the Fire and Nook and eventually the Nexus have any hope of competing at 7" is because Apple is not yet competing there; Apple has so far left all that money on the table. And we now know that there is a market for a 7" tablet, as has already been proven.
What Apple's strategy would be is to put out a clearly-better option at 7", so that the customer base who wants a tablet this size has a clearly-better option. They obviously can put out a clearly-better option at 9.7", and a highly-competitive option at 3.5"; the numbers are in on that.
The real trick is to get away from the largest problem, which is that iPad owners are unlikely to be multiple iPad owners; most who buy an iPad are no longer potential customers, until obsolescence sets it. This is the problem with the iPod; everybody already has one so they can't sell them another one. But from all of the folks who bought an iPad 2 and then a year later also quite surprisingly bought an iPad 3, I think there are a lot more iPad owners who would also want a 7" at $199, and that solves that very problem to a significant degree, especially if the 7" has the evolutionary new special sauce that even the iPad 3 does not have, which it probably will. IOW, they will justify that it is different (and new) enough to be a different product worth having, even if they already have a Touch, or a 9.7" iPad, especially because it costs half or less than the iPad cost them last year.
Hide and watch. Its a way to bridge full iPad models for those who have an older iPad and want a newer one but can't justify replacing it at full cost. For a lot of those folks, this they could do.
The rest of the strategy is based on 3 things:
1) price it high enough so that it does not cannibalize sales of the iPod Touch or the 7" iPad. They don't want to make a smaller profit on a lower-priced smaller tab if it means people will buy the item with the lower profit instead of the one with the higher profit.
2) price it low enough so that it competes strongly with the other 7" tabs out there. You don't want to chase everyone away, to other, less-expensive options.
3) price it high enough so that they can still make a small or even not-so-small profit; there has to be enough profit so that you are not cannibalizing the profit from other Apple products, but it still has to be priced low enough to compete, and $349 is waaaaaay too high to be a strategy at all.
2) price it low enough so that it competes strongly with the other 7" tabs out there. You don't want to chase everyone away, to other, less-expensive options.
3) price it high enough so that they can still make a small or even not-so-small profit; there has to be enough profit so that you are not cannibalizing the profit from other Apple products, but it still has to be priced low enough to compete, and $349 is waaaaaay too high to be a strategy at all.
Assuming these price points (and the stars) align without conflict, they can price it for $199 and basically kill off all competitors, or price it at $229 and make all of their competitors at least wish they were dead. If the numbers above do conflict, they might have to go for $249. If those numbers do not align, they have no business even building a 7" iPad, but since everyone except the OP here believes they will, the numbers probably do work out just about like this. Otherwise, why would they even bother?
Now a $349 7" iPad; that is what is silly. Why would Apple embarrass themselves by taking a chance on this not working and everyone just going to the $199 competitor, which they would in droves, even if it might not really be as good as an iPad? Apple is also exceptionally sensitive to a legacy of high prices from years gone by; they work hard to dissuade us from thinking that they might be regularly gouging their customers. I also think it would be confusing to customers that the iPad2 might be so close in price to a new iPad half its size.
And all of this must also take into account that they will have to drop the price on the Touch so it is not glaringly high compared to a 7" iPad; a Touch with equivalent storage can't be more than $30 higher than a 7" iPad, and the only reason it could be that much more that they could hang their hats on is it is still a device without a competitor (other than phones) and it costs more to make the technology that tiny. Let's not forget that an unsubsidized iPhone is around $650 for two reasons:
1) it is expensive to produce technology this light and small with decent battery life; more expensive and challenging than making it bigger (read: iPad).
2) the perceived value of an unsubsidized price of $600-$700 erects a barrier that pushes customers towards a phone with a calling and data plan contract, which is what they and their partners want (AT&T rebates Apple $18 per month for every phone they have a plan on, meaning a 2-year plan is a guaranteed $432 on top of the out-the-door price of $199 or $299, straight into the Apple coffers, and most people remain month to month even after the contract).
Bottom line, I predict a 90% chance of the 7" iPad (7.85), a 60% chance of it starting at $199, a 35% chance of it starting at $229, a < 4% chance it will be priced between $229 and $349, and a < 1% chance of it being as high or higher than $349. Nothing else makes any sense. I also expect a steep drop on the Touch, unless it gets some serious magical upgrade mojo.2) the perceived value of an unsubsidized price of $600-$700 erects a barrier that pushes customers towards a phone with a calling and data plan contract, which is what they and their partners want (AT&T rebates Apple $18 per month for every phone they have a plan on, meaning a 2-year plan is a guaranteed $432 on top of the out-the-door price of $199 or $299, straight into the Apple coffers, and most people remain month to month even after the contract).
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