Is the Kindle Fire's Flame Burning Out?

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Kindle FireAmazon.com (AMZN) turned heads last year with its economically priced tablet, but necks are apparently stiffening up these days.

Tech tracker IDC is reporting that Amazon sold just 750,000 of its $199 Kindle Fire tablets during the first three months of the year, well off the 4.8 million units that it sold during last year's fourth quarter.

There are plenty of perfectly good explanations that account for part of the slide.

  • Of course sales will fall sequentially in the first quarter. Tablets are hot sellers during the holiday shopping season.
  • Amazon introduced the Kindle Fire in November, so it received a lot of media attention at the time.
  • Apple (AAPL) rolled out the new iPad in March, stealing media coverage.
  • Along with the new iPad's launch, Apple decided to continue selling the entry-level model of the iPad 2 at a $100 discount to the original $499 price.

All four factors definitely weighed down Amazon's momentum earlier this year, but things are more grim than even the explanations suggest.

Take Two Tablets and Call Me in the Mourning

Did tablet sales slip after the holidays? Absolutely. Apple sold 15.4 million iPads during the final three months of 2011, only to sell just 11.8 million iPads during the first three months of 2012.

However, the 23% sequential slide is mild compared to Amazon's 84% decline for the Kindle Fire.

IDC claims that the seasonal slowdown resulted in a 38% drop in worldwide media tablet shipments. Why did Amazon fare so badly? Apple actually increased its share of market this past quarter, while Amazon went from 17% during the holidays to 4% now.



Amazon did garner plenty of media coverage and hype during the mid-November debut of its tablet, but that also means that it only had half a quarter of market availability.

Apple's decision to shave the price of the iPad 2 to $399 in March played a part, but that still leaves us to wonder what went wrong in January and February, before consumers knew about the cheaper iPad 2s.

Besides, even with the lower price of the iPad 2, it still costs twice as much as a Kindle Fire.

A Moving Target

All those "Apple did this" and "Apple did that" excuses for the Fire's softening sales don't explain everything.

While Amazon was the undisputed distant silver medalist during the fourth quarter, Samsung passed it up for second place this past quarter. Amazon is now being fitted for a bronze medal, with Lenovo and Barnes & Noble's (BKS) Nook Tablet not too far behind.

Things may get hairier. Target (TGT) -- the cheap-chic department store chain -- will stop selling the Kindle Fire this month. Target may have thought that stocking the cheap tablets would be a good way to increase its sales in consumer electronics, but ultimately the chain realizes that it doesn't want to arm a rival that has an ecosystem in place to replace Target's DVDs, CDs, video games, and books with digital editions that Amazon delivers directly.

If other retailers follow Target's lead, Amazon will be back to relying on pushing its proprietary products on its website's landing page.

Fire Sale

"We expect a new, larger-screened device from Amazon at a typically aggressive price point," IDC predicts, echoing what many analysts believe will happen. The seven-inch Kindle Fire may soon have a larger sibling to match the 9.7-inch iPad, and obviously it will sell for a lot less than Apple's market-defining tablet.

Maybe that will help, but it obviously won't be enough to close the gap with Apple. As makers of Android-fueled tablets try to battle it out on price, Apple's pedigree and developer-rich App Store make it the runaway champion.

If Amazon and other tablet makers let Apple be the one to replace textbooks with e-readers in the classroom, the battle will be over. And it won't just be Amazon licking its wounds as it wonders why the Kindle Fire never set the world ablaze the way it had originally wanted.

Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and writing puts on Barnes & Noble.


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12 Comments

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Andie

I bought a Fire when they first came out. My teenager liked it so much that we bought him his own for Christmas...and on the Big Island of Hawaii, that was not easy!! They were completely sold out on our half of the island (even the ones at Radio Shack, which were selling for $30 more than everyone else), so I had to get one from the Kona side. They remained sold out until early April. I'm pretty sure that he has yet to read a book on it, but he plays with apps and goes online constantly. My husband liked the Fire so much that he bought his own refurbished one from Amazon for $170 with a one-year warranty. The other teenager, our eight-year-old, and our three-year-old all borrow them. I absolutely love the Fire, and was thrilled to have an alternative to Apple (we've had ipods in the past, and I hate being forced to use itunes).

May 19 2012 at 7:07 PM Report abuse rate up rate down Reply
RVFLSLVB

I bought the kindle and it sucked! I returned it a week later.

May 14 2012 at 10:55 PM Report abuse rate up rate down Reply
afitzgeraldg

I feel real sad about Amazon problems, NOT. How about all the dolphin killing they do to feed other countries, SHAME on
Amazon I will never but anything there.

May 14 2012 at 9:15 PM Report abuse rate up rate down Reply
kdiamondd

For reading, the Kindle--not the Kindle Fire--is ideal. I fervently hope Amazon keeps the keyboard model option, because I like it SO much better than a touch screen. I want to see electronic books go down in price. It is much healthier for me to read them than print books, and a lighted screen would be very bad for my eye problems for reading. The Kindle is fantastic. I have NO interest in an Ipad.

May 14 2012 at 6:00 PM Report abuse rate up rate down Reply
What up De

Seems to be an OK product but does not compare to the iPad. You get what you pay for.

May 14 2012 at 2:29 PM Report abuse rate up rate down Reply
leigh0

Buying my girlfriend a Kindle turned out to be a major mistake thanks to built-in restrictions. The decision to go with Kindle rather than an iPad or Nook or Kobo was that she could share books with her sister in South Africa who also has a Kindle.

Nope, not allowed, we belatedly discovered. Also, the initial registration didn't 'take' so we re-registered, only to find the free offers were no longer available, taking more of the luster off the gadget. Then we found another block. When we tried to download free apps, we discovered those she wanted wanted a US credit card. Don't know why, but the iPad doesn't have that bottleneck.

Kindle may be okay for some, but it's turned out to be a headache for us. Bad, bad decision to buy a very restrictive product.

May 14 2012 at 2:06 PM Report abuse +1 rate up rate down Reply
gwyneth49

I love my Kindle Fire! I had an Ipad that was a gift and I returned it. My fire is smaller, cost less,
and does everything I want in a tablet!

May 14 2012 at 1:04 PM Report abuse rate up rate down Reply
lifehub

AOL is super jealous of those markets who do well.....Walmart, Amazon, Facebook, Yahoo.....AOL itself makes very little compared to these giants and often talks about them like dogs. Jealousy never made anyone successful.

May 14 2012 at 12:50 PM Report abuse +1 rate up rate down Reply
tbenakovich

I love my Kindle Fire, and highly recommend it. Even though you have wifi on it, can play games, etc...it's still awesome for reading books - which is what the original intent of the Kindle was. I'm not going to use another tablet or an iPad for reading books....lol

May 14 2012 at 11:15 AM Report abuse rate up rate down Reply
James M. Hartje

Yes I think so because the iPad is just becoming so dominating!

May 14 2012 at 12:06 AM Report abuse rate up rate down Reply