In Amazon’s (NASDAQ:AMZN) last earnings report, it posted net income of $130 million (28 cents per share), down 35% year over year, even as revenue increased by 34% to $13.8 billion. Much of the blame for these conflicting numbers goes to its Kindle Fire tablet. Although costly to develop and sold at a loss (sales of e-books and other content are expected to make up the difference), the $199 Kindle Fire rapidly became the best-selling Android tablet in the lead-up to Christmas 2011.
But things aren’t looking rosy for Amazon at the moment. In fact, several threats are hanging over the e-commerce giant.
Kindle Fire sales collapsed after the holiday season. The Wall Street Journal reported that Amazon moved 4.8 million Kindle Fires in Q4, 17% of the world tablet market. But in Q1, that number dropped to 700,000 — a market share of just 4%.
Rumors won’t go away that Apple (NASDAQ:AAPL) is planning to release a smaller, cheaper iPad. Indeed, those rumblings are becoming a drumbeat. A 7-inch iPad in the $200-$250 price range could be a death blow to Amazon’s Kindle Fire, which has suffered from complaints of poor performance and an unimpressive display compared to Apple’s tablets.
While a smaller iPad was far-fetched only a year ago — because of Steve Jobs’s disdain for a smaller screen — it seems plausible now. Apple might attempt to duplicate its highly successful iPod strategy: expand to multiple form factors to dominate every