Amazon.com, Inc. (NASDAQ: AMZN) has lost its focus.
The pioneer of clicks for sales has decided it wants to be the next Apple Inc. (NASDAQ: AAPL).
But there's a big difference between selling other people's products for a profit on a Website and becoming the provider of custom hardware solutions for retail buyers.
This transition isn't going to end well.
The Amazon Fire is a chopped-down tablet designed to compete with the iPad. There is a world of difference between the two products and where they are in their lifecycles.
Amazon is selling its Fire tablet for half the price of the iPad, which looks great on the surface. When you compare exactly what each product brings to the table, though, it's obvious the iPad 3 (due in mid-March) will douse the Fire.
The iPad 3 will have a slew of hardware enhancements over the last iPad, and while iPad 2 was a generational upgrade over the original, it still caught the world by surprise.
The tablet market has tried before to build a better-valued product to compete with the iPad, which is where the Amazon Fire comes into play.
The reality is that the Fire is a first-generation equivalent to the iPad but with smaller physical size and limited features.
The Fire is easily two years behind the curve in the Apple-equivalent build cycle of features for same purchase price. Two-year-old technology is an eternity when you're competing against the best product designers on the planet.
This is important because the bar continues to rise, and Apple can start to sell a similar product with a premium feature set at a slight markup, destroying Fire's niche.
This weakness is a terminal issue in my opinion.
When you think about it, Amazon is subsidizing the construction and sale of the Fire, with estimated losses on each unit, as it deploys them around the world to users.
This makes me wonder when the pain of the Fire will cause Amazon to adopt a less volatile business plan.
So it's time to sell Amazon.com Inc. (NASDAQ: AMZN) (**). The Fire will continue to burn investors in Amazon for quarters.
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AMZN stocks history
Amazon.com Inc. (Nasdaq: AMZN): Growth Phase Pinches Profits, but Investors Should Ride it Out
Internet retailer Amazon.com Inc. (Nasdaq: AMZN) reported soaring revenue and limited profits today (Tuesday) - but investors shouldn't be discouraged by the low earnings as the company invests in future growth.
Amazon.com reported net income of $177 million, or 38 cents a share, compared to net income of $416 million, or 91 cents a share, for the same period the previous year - a 58% plunge. Revenue jumped to $17.4 billion, a 34% rise from the $12.95 billion in 2010's fourth quarter.
While revenue fell slightly short of Wall Street's expectations, earnings were more than double the predicted 17 cents a share. Amazon.com had given fourth-quarter guidance with a revenue range of $16.5 billion to $18.7 billion.
Amazon.com revenue got a healthy boost from sales of Kindle Fire, the tablet and e-reader running Goolge Inc.'s (Nasdaq: GOOG) Android software. Total sales of the Kindle Fire and other e-reader devices increased 177% in the nine-week 2011 holiday season compared to the same period in 2010. The company reported that Kindle Fire is the No. 1 selling product available on Amazon.com since it was introduced in November.
Amazon Kindle Tablet Will Plump Revenue and Disrupt Market
A rumored Amazon Inc. (Nasdaq: AMZN) Kindle Tablet will deliver billions of dollars in fresh revenue next year.
In addition to its hardware sales, the tablet will provide a quick and convenient way for Amazon to capture a bigger chunk of the digital media market and allow customers to buy any of its millions of offerings from almost anywhere.
The 7-inch tablet is expected to appear within the next month or so and cost just $250. Such a low price from a trusted brand like Amazon will disrupt the entire tablet market.
"A proprietary tablet would allow Amazon to widen itscompetitive moat, improve consumer experience and benefit from the rapid growth in mobile usage," Jefferies & Co.'s (NYSE: JEF) Youssef Squali wrote in a report.
Although analysts expect Amazon to make little profit from the tablet itself, its potential for selling more of its digital wares such as e-books, movies, music and Google Inc. (Nasdaq: GOOG) Android apps is boundless.
The Kindle e-reader shows how hardware can drive media sales. It has helped Amazon capture 90% of the e-book market.
The Kindle e-reader will account for 9.9% of Amazon's total revenue next year, just five years after its debut, according to Citigroup Inc. (NYSE: C) analyst Mark Mahaney. Mahaney estimates about half of that revenue, $6.1 billion, will be from sales of the device, with the other half from e-books.
An Amazon Kindle Tablet will open up multiple digital avenues of growth.
Take online video sales, for example. Amazon has just 4.2% of that market, well behind the 65.48% share of Apple Inc.'s (Nasdaq: AAPL) iTunes Store.
In terms of additional revenue, the Kindle tablet could quickly rival that of the e-reader.
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