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Amazon unveils $199 Kindle Fire tablet, taking on Apple's iPad

September 28, 2011

Amazon.com Inc., the world's largest online retailer, unveiled its Kindle Fire tablet computer, taking aim at Apple Inc.'s bestselling iPad with a device that's smaller and less than half the price.

The Kindle Fire will have a 7-inch display and sell for $199, compared with $499 for Apple's cheapest iPad, Amazon executives said. The device, a souped-up version of the Kindle electronic-book reader, will run on Google Inc.'s Android software, the Seattle-based company said.

Chief Executive Officer Jeff Bezos is betting he can leverage Amazon's dominance in e-commerce to pose a real challenge to Apple's iPad, after tablets from rivals such as Hewlett-Packard Co. and Research In Motion Ltd. have fallen short. Sales of Amazon's electronic books, movies and music on the device may help make up for the narrower profit margins that are likely to result from the low price, said Brian Blair, an analyst at Wedge Partners Corp. in New York.

"Amazon is really the only other guy, the only other potential tablet player, that has a similar offering to what Apple has," Blair said in an interview last week. "If you look across their product offerings, they have content that none of the other tablet makers currently have because they have content on the media side."

The Kindle Fire doesn't have an embedded camera or a microphone. The device offers Wi-Fi connectivity, though not 3G access, and comes with a 30-day free trial of Amazon Prime, the company's $79-a-year membership service that includes streaming video and free two-day shipping.

Amazon has painted over the rough surfaces of Google's Android operating system with a fresh and easy-to-use interface and tied the device closely to its own large and growing content library of movies, magazines and music.

Cambridge, Massachusetts-based Forrester Research Inc. predicts the tablet market will grow 51 percent a year through 2015. While the new Kindle will add to Amazon's sales, estimated by analysts to rise 32 percent to $64.6 billion in 2012, the company may disappoint if the tablet doesn't bring in revenue quickly, Steve Weinstein, an analyst at Pacific Crest Securities in Portland, Oregon, said in a note this week.

Consumer reaction to the device will play a "critical" role in the company's growth, he said. Analysts on average predict Amazon's gross margin, a measure of profitability, will fall to 22.17 percent in 2012 from 22.35 percent last year, according to a Bloomberg survey. Gross margin is the percentage of sales left after subtracting production costs.

"Without success in tablets, investor growth expectations for 2012 could prove too aggressive," Weinstein said Sept. 26.

Apple started selling the original iPad in April 2010, and introduced the iPad 2 in March of this year. The touch-screen device, which has a 9.7-inch diagonal display, is already Apple's biggest source of revenue after the iPhone. The company shipped 9.25 million iPads in the quarter that ended June 25.

Apple also leads the market for mobile applications, with more than 425,000. Over 100,000 of those apps are custom- designed for the iPad.

Two other tablets have failed to make a dent in Apple's dominance so far. Research In Motion Ltd.'s PlayBook, introduced in the second quarter, shipped 200,000 units, less than half of what analysts predicted. Analysts had already cut estimates for full-year PlayBook shipments to an average of 2.2 million, according to a Bloomberg survey.

Hewlett-Packard Co., meanwhile, discontinued its TouchPad in August -- only about a month after its debut. And Microsoft Corp., the world's largest software maker, may not have its Windows operating system for tablets ready until next year.

The iPad accounted for 68 percent of all tablets shipped worldwide in the second quarter, according to Framingham, Massachusetts-based research firm IDC. Other Android-based tablets, including models from Motorola Mobility Holdings Inc. and Samsung Electronics Co., accounted for 27 percent.

While Amazon has the clout and the content to take on Apple, the company will have to go beyond the tablet released today to be a serious competitor, Blair said.

"I don't actually believe 7-inch is going to be a viable tablet for anybody," he said. "It's a tweener. A real tablet offering has got to be a 10-inch screen."

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