Amazon Kindles Tablet Price War With Revamped Range Of Tablets

Amazon (NASDAQ:AMZN) unveiled four new Kindle Fire tablet computers this Thursday, including ones with larger color screens, in addition to new e-readers as it steps up competition with Apple (NASDAQ:AAPL) ahead of the key holiday shopping season. The new Fires will run a modified version of Google‘s (NASDAQ:GOOG) Android O.S. The company also introduced several new features with the devices which will help differentiate it from several existing tablets in the market. With speculation that Apple will introduce a smaller iPad sometime this month, the company has taken the fight to the former with a larger Kindle Fire that has screen size of 8.9 inches compared to the 9.7 inches for iPad.

See our complete analysis for Amazon

Better features at lower prices

The original Kindle Fire came with a 7-inch screen compared to the new Kindle Fire HD’s screen size of 8.9 inches. The basic version of the new Fire will ship at $299 or $100 less than the cheapest iPad. The basic, 7-inch Fire model, with 8 GB storage will now cost $159, down from $199 for the original model, which sold out late last month. The 7-inch Fire HD will cost $199 and starts shipping next Friday. With twice the memory and a longer battery life, the new 7-inch Fire is reportedly 40 percent faster than the older version. The premium Kindle Fire HD, with 32 GB storage and 8.9 inch screen, will have two Wi-Fi channels and two internal antennas for faster, smoother transfers. The supported Wi-Fi transfer speeds of up-to 31 Mbps, ^[1] could prove crucial for streaming high-definition movies and other larger files. The company competes directly with Netflix (NASDAQ:NFLX) in the market for streaming video content with its ‘Amazon Instant’ service. Kindle Fire HD with the ability to connect to the 4G cellular networks will cost $499. ^[2]

The company also refreshed its line of e-readers. Called Paperwhite, the new model has a black and white screen and comes with a light source which enables reading in a dark environment. It’ll compete directly with Barnes and Noble’s Nook device. With eight weeks of battery life, even with the light on, Paperwhite will cost $119. There’s also a model with 3G cellular connections for $179. The low-end Kindle Touch has been retained and will now cost $69 instead $79. The drop in prices of the Kindle range is in-line with our expectations. We expect the prices to further drop top $113 by the end of our forecast period.

The device has a considerable price advantage over the iPad range and coupled with several new features, it is much better placed to compete with it. We expect it to challenge Samsung Electronics (PINK:SSNLF) in the coming months for the second position in the tablet market. ^[3] The profit margins on the devices seem to be razor thin, if any. The company expects the devices to bring in profits from the increased sales of digital content through its online store. This is in contrast to Apple’s strategy of making a healthy profit on every device sold. We expect the new Kindle to continue bringing in revenues for the company, like it has in the past.

Key Risk: Small Size of App Market and a smaller iPad

The primary risk to popularity of the new Kindle Fire devices will be the limited selection of apps available when compared to Apple’s iPad. Besides, if the speculation of a new smaller iPad prove true, the company will face additional competition from the market leader. It already competes with Google’s Nexus and Samsung Galaxy range of devices which have devices with similar sizes. Additionally, the HD models lacks a rear-facing camera which can be used for shooting photos or videos, a common feature in tablets. Combined with the brand loyalty that Apple products enjoy, these factors may limit the proliferation of the new devices.

We currently have a $222 estimate for Amazon which is 11% below the current market price.

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1. Amazon Heats Up Tablet Market With a Handful of New Kindles, All Things D, September 2012 [↩]
2. Amazon Stirs Up a Price War, The Wall Street Journal, September 2012 [↩]
3. Market share for tablet systems, International Data Corporation, August 2012 [↩]