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Nomura: Amazon's Kindle Fire 'Devastating' For Other Tablet Makers

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The Kindle Fire, retailing for only $199, could be the Android tablet that sells in volumes and provides real competition against the iPad from Apple (NSDQ: AAPL). The analysts at Nomura have looked at what the consequence will be for other tablet makers (not just those building on Google’s Android), and it’s not pretty: the investment bank predicts a “devastating” holiday season for the likes of Motorola (NYSE: MMI), RIM (NSDQ: RIMM), HTC and Samsung. But the dark cloud for tablet makers has a silver lining for consumers: the oversupply of those tablets in the retail channel will result in some major price cuts ahead to move inventory.

In a research note, Richard Windsor notes that even though these four tablet makers are all forecasted to have increases in shipments in coming quarters, price and content are going to win out over functionality (another take on the “death of the spec” that MG Siegler wrote about in Tech Crunch last week):

“We are struggling to see why a consumer would pay twice as much for a slightly larger tablet but with little content,” writes Windsor. (Basic retail prices for the PlayBook, which is now already being discounted, were around $359; the iPad, Samsung Galaxy Tab and Sony (NYSE: SNE) Tablet all retail for $499; the Xoom for $459.)

Amazon (NSDQ: AMZN) has been projected to sell as many as five million Kindles in Q4 in the U.S.. Against that, if you believe the projections from IDC, the number of other tablets in the retail channel could be as high as three million to four million units by January 2012, which will now be struggling even more to find buyers. The only way of dealing with that “inventory overhang” will be “aggressive cuts,” he writes.

But it’s not all brilliant news for Amazon, either: Nomura estimates that at the moment Amazon is losing $10.63 of gross merchandise margin per Kindle Fire sold, calculated by Nomura after analysing the bills of material for the device. That loss is based on 1 million units sold; but the more Amazon sells, the worse that margin gets:

That’s a loss Amazon is probably willing to take right now, in order to get traction for its money-making digital content business, writes Nomura. It projects that business will make Amazon some $1 billion in revenues in 2011 — or 12 percent of all of Amazon’s media revenues (which also includes sales of DVDs, CDs and other media).

But ultimately that loss might also lead to Amazon partnering up with hardware manufacturers to make the device longer-term — opening the door again for Samsung, HTC and Motorola, and others, perhaps?

What else could you get from this? Since Amazon has yet to start retailing the Fire outside the U.S., there are still openings for tablet makers to turn things around elsewhere — although with no obvious new offerings to compete with the content portfolio that Amazon (and Apple) have available to users via their app stores and other cloud-based media services, for the moment they unfortunately remain sitting ducks.

4 Responses to “Nomura: Amazon's Kindle Fire 'Devastating' For Other Tablet Makers”

  1. I don’t understand why partnering with a larger manufacturer would make any positive difference for Amazon, since those manufacturers are largely buying their tablets from the same manufacturers (Quanta, and as reported today, Foxconn) as Amazon. HTC, Samsung, Motorola, etc., would have to make a profit, which would raise the price of the tablets. Amazon hasn’t had to work with a “name-brand” vendor since it started selling Kindles four generations ago–there’s no reason for it to start working with them now.

    • Ingrid Lunden

      Hi Leonard. I agree. I think that’s the point: that partnering with other providers will mean either higher prices for the Fire, or something that the other tablet makers could get a cut on. Quanta, by the way, apparently makes a small margin on the device, according to Nomura.

  2. “We are struggling to see why a consumer would pay twice as much for a slightly larger tablet but with little content” WHAAT?
    Android has Kindle, Nook, Netflix, Hulu, Amazon mp3, Google Music etc etc apps. The only advantage for now is Amazon Prime, and lets face it – you don’t need it if you have Netflix. There is absolutely no difference in amount of content otherwise.  

    • Ingrid Lunden

      Hi Karen. Definitely a valid point. The ‘unified’ Amazon experience, I guess, is what is being sold here — that it’s really integrated with their services. They may all have the same stuff, in theory, but not perhaps sold as a unified content experience, and (perhaps more crucially) not for that rock-bottom price.