Analyst predicts lower Amazon profits after cheap Kindle Fire sales

We know that the Amazon Kindle Fire costs about $10 more to produce than its $199 selling point, and according to a Needham & Co. analyst, that loss-leading figure is going to hurt Amazon’s third-quarter profits by a considerable margin. Amazon’s earnings are predicted to fall by more than half year-over-year, from 51 cents to 24 cents a share. Amazon is of course mum on the subject, but even if the prediction is only half right, it illustrates how great a risk Amazon is taking on the Android-powered Kindle Fire.

Of course, Amazon is no stranger to risk. This is the company that brought e-readers to the mainstream with a $400 single-purpose device back in 2008. Since then e-books have outsold real books on Amazon.com, and generate billions of dollars a year in profit worldwide. Come November you’ll be able to buy the cheapest Kindle model for less than a hundred dollars. If anyone can reset the bar for multi-purpose, cheap tablets to make a single-device rival to the iPad, it’s Amazon. Even with loss-leading hardware and millions spent in development and marketing, the company’s strategy is a long-haul reset of customer interaction.
And Amazon’s strategy isn’t just about low price. The Kindle Fire and its descendants (like the 10-inch model we keep hearing about) is going to be Amazon’s new digital face, a hardware-based interface for all of their digital and retail goods. The heavily-customized Gingerbread OS is all about bringing Amazon books, movies, apps and store products to the forefront, hoping that customers will shell out and make up the difference in purchases. When you consider that two Kindle books or three movie rentals can make up for the loss-lead immediately, it’s easy to see why Amazon is eager to get tablets in people’s hands for as little as possible. Is it working? Ask the 250,000+ people who have pre-ordered the Kindle Fire.
Interested? Check out our hands-on footage of the Amazon Kindle Fire.
[via SlashGear]

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Tags: Amazon