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Amazon.com Inc. (NASDAQ:AMZN) says it has sold out its Kindle Fire tablet computer  amid speculation of a new model being launched at a press conference scheduled for next week. The first Kindle Fire launched last November was priced at $199 and could run third-party applications on its Google (NASDAQ: GOOG) Android based operating system. The company says that it captured 22 percent of the U.S. tablet market in the nine months of sales post the launch. Tom Mainelli at research firm IDC ratifies these figures which match his estimate of 6.7 million Fires sold so far. The new launch, if it happens, would face stiff competition from Apple’s (NASDAQ:AAPL) iPad and the recently launched Google Nexus 7 which is also priced at $199.
Standard features and lower prices give a competitive advantage
The original Kindle Fire was priced low as it was smaller and lacked several features. Additionally, the company has a small or zero profit margin on these devices. The strategy was to encourage people to buy from Amazon store which was linked to the device. Now there are reports of added functionality being present in the new Fire. The company has tied up with Nokia Oyj for its mapping service according to some recent reports.  The tie-up would result in addition of location capabilities to the new Kindle Fire which requires a GPS chip or a process known as WiFi triangulation. Mapping services are a standard feature on mid-high range tablets and typically include street maps, information about local businesses and traffic status.
We expect the addition of these somewhat essential services to even the playing field, and coupled with its attractive pricing, it will better compete with iPad and Nexus. The research firm ABI Research estimates tablets to outsell e-reader 9 to 1 this year despite the former costing four to five times as much. With the worldwide sales of e-readers pegged at 11 million in 2012, the market for the new Kindle is huge.
We currently estimate Amazon to sell 59 million Kindle units (both e-readers and Fire) annually by the end of our estimate period, almost double the estimate we have for the current year. We currently have a $222 estimate for Amazon which is 10% below the current market price.Notes:
- Amazon Kindle Fire sold out as new model expected, Associate Press, August 2012 [↩]
- Amazon teams with Nokia, snubs Google for maps-sources, Reuters, August 30, 2012 [↩]