Amazon Faces Supply Concerns For Kindle Fire Tablet

Amazon and its hardware supplier Quanta is now facing scrutiny as to whether they can make enough Kindle Fires to satisfy consumer demand.

It’s a fair question. When the first Amazon Kindle debutted in 2007, the e-commerce giant didn’t make enough and the existing e-readers were snapped up in one week. The spectre of that supply shortage cast a pall over some analysts’ estimates for Kindle Fire sales this holiday season.

Supply Questions

Piper Jaffray analyst Gene Munster is projecting Amazon to sell only 2.5 million of the 7-inch, custom Google Android slates for the year. “If supply were not an issue, we believe Amazon could sell closer to 4 million Kindle Fires in the holiday quarter,” Munster wrote in a research note 28 September.

However, Amazon CEO Jeff Bezos said at the Kindle Fire launch event in New York City that his company is making millions of tablets.

This factoid was seconded by Forrester Research analyst Sarah Rotman Epps, who had been calling for a Kindle tablet since early this year. Epps said this would not be an issue: “Kindle VP Dave Limp says they’re making ‘millions,’ which is good, because that’s how many we expect them to sell.”

Moreover, IHS iSuppli said Amazon had lined up 4 million to 5 million screens for the quarter.

Noting that while Amazon should move a lot of units by selling the Kindle Fire at retail partners Best Buy, and RadioShack, as well as Amazon.com, Epps expects the company may sell 3 million units, which is the low-end of her previous model of 3 million to 5 million unit sales. She attributed this to the fact that the company isn’t shipping the Kindle Fire until 15 November, or only 40 days before Christmas.

Feature Poor

So Munster is calling for 2.5 million Kindle Fire unit sales, while Epps is calling for 3 million. Those are liberal figures for JP Morgan’s Mark Moskowitz, who remained wholly unimpressed by the Kindle Fire because he believes it pales in comparison to the more feature, rich, user friendly Apple iPad. The Kindle Fire lacks a camera and a microphone, has only 8GB of internal storage and no 3G mobile broadband access.

He also said the Kindle Fire’s screen is too small for content viewing compared to the 9.7-inch screen real estate of the iPads. Finally, he pointed to the slate’s $199 (£128) price point as evidence of an inferior offering to the iPad.

“In our view, Kindle Fire’s low price point speaks to how there is much lacking in the device,” he wrote in a research note Sept. 30. “At $199, we argue that the price point is not going to afford most users a tablet experience, which is a problem if Amazon wants to become a major tablet vendor. Until we see how the Kindle Fire evolves, we are comfortable stating that the emergence of a major two-tablet vendor remains elusive.”

Moskowitz believes the Kindle Fire is simply a stopgap, hybrid device before Amazon launches a superior, second-generation Fire with a 10-inch screen and features the first model lacks.

Loss Leader

Whether Amazon manages to sell 300,000 Kindle Fires or 3 million of the gadgets, it’s selling them at a loss, according to iSuppli.

The researcher said Kindle Fire parts cost $191.65 (£123.67), with extra manufacturing expenses pushing the total bill to $209.63 (£135.27). That means Amazon is losing nearly $10 (£6.45) on every Kindle Fire it sells on hardware alone.

However, iSuppli then took into account the movies, music and application content Amazon will sell with every Kindle Fire and concluded the company could make a wee profit of $10 per device.

“However, the real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content,” Andrew Rassweiler, senior director & principal analyst at iSuppli. “Rather, the Kindle Fire, and the content demand it stimulates, will serve to promote sales of the kinds of physical goods that comprise the majority of Amazon’s business.”