Amazon ramps up Kindle Fire production to 5 million units in 2011

AppleInsider · November 10, 2011 2:08AM

Faced with greater than expected demand, Amazon has increased orders for its Kindle Fire tablet to a total of five million by the end of the year, according to a new report out of the Far East.

Taiwanese publication DigiTimes noted the figures on Thursday, citing sources within "upstream component suppliers." Based on recent tablet estimates from research group Gartner, Amazon would pickup roughly 8 percent of the 2011 tablet market if it were to sell all five million units.

The report suggested that Amazon had raised its order volume from 3.5 million to four million in the middle of the third quarter before raising orders again. The significant pre-release interest has come as a bit of a surprise to the company.

Amazon CEO Jeff Bezos said in a press release last month that his company was increasing production capacity for the Fire in order to build "millions more" than originally planned.

But, high demand for the tablet could hurt the company's profit margins in the short term. Amazon has guided for as low as a $200 million loss next quarter.

For its part, Apple has rejected concerns that the Fire will hurt sales of its iPad. High-level executives from the company recently indicated to an analyst that they view the competing tablet as good for Apple because it will further fragment the tablet market.

However, if a recent survey is to be believed, 26 percent of Kindle Fire buyers delayed or put on hold an iPad purchase. Among 2,600 respondents, 5 percent said that they had already preordered or were "very likely" to purchase soon the Amazon tablet.

Announced in September, the 7-inch Kindle Fire will undercut the iPad with its $199 price when it goes on sale next week.

The Fire is said to be kindling for Amazon's broader tablet strategy. Recent reports have suggested that the online retailer will release an 8.9-inch second-generation model next year. According to Concord Securities analyst Ming-Chi Kuo, that device will have an "amazing form factor," though manufacturers may be having a hard time meeting Amazon's requirements for the tablet.

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realistic · November 10, 2011 4:01AM

This is good news? Amazon loses money on each unit sold. The old I can't make money on each unit sold but I'll make up for that with volume.

red oak · November 10, 2011 4:17AM

Amazon is going to lose $300MM this quarter. The holiday shopping season. Apple will earn $10 billion.

Amazon is winning

drdoppio · November 10, 2011 4:28AM

I bet Amazon are kicking themselves in the back for not announcing the Kindle Fire at $250. They would have broken even on the production costs and still sold a couple million Kindles without breaking a sweat.

saarek · November 10, 2011 5:54AM

I have to admit to being tempted by the Kindle Fire myself.

I love my iPad but mostly use it for music, books/newspapers and the odd game of Angry Birds, rather than getting an iPad 3 next year I might trade down to one of these.

Will wait for actual reviews of the device first.

dunks · November 10, 2011 6:13AM

I mostly like the new kindle lineup. It's not a Jony Ive standard of design but they're not as fugly as some of their competitors either. Time will tell if the quality of the content is going to justify the investment in the ecosystem. They are definitely getting a leg up from the success of the App Store though. You only have to look at the apps they are showcasing in their promotional materials. The want you to think you can have the app store experience for half the price.

$200 is A pretty compelling price point, but if they're losing that much per device it's going to be a bumpy ride for the next few months. I can see alot of people spending $200 for the web browser, 99c for handful of apps and then shafting the rest of the paid services.

ncee · November 10, 2011 6:15AM

26% of Amazons customers, when asked, said they were considering purchasing the Fire over the iPad.

26% of Ford's Customers, when asked, (just ask Mike Rowe) said they were considering purchasing a new Ford over the new Rolls Royce ?

Folks can skew numbers, and make people think all kinds of things. Heck, maybe he see's this as his opportunity to become the next Steve Jobs, and convince folks of this, but in the end, folks will buy, what works best for them, and for this, iPad will win out.

Will they sell some, hell yes. There are MILLIONS of folks out there on a budget and this will fit them very well. This does mean of the other hand, that there will be MILLIONS of unhappy campers this christmas, when the open there gifts, only to find a Fire in the box, and not an iPad

IMO

Skip

dick applebaum · November 10, 2011 6:29AM

For those considering the Fire...

1) What are the top 3 reasons/attractions?

2) How does this compare with the new Nook Tablet?

firefly7475 · November 10, 2011 6:40AM

Quote:

Originally Posted by Red Oak

Amazon is going to lose $300MM this quarter. The holiday shopping season. Apple will earn $10 billion.

Amazon is winning

At the end of the day, nobody wins.

karmamule · November 10, 2011 6:59AM

Quote:

Originally Posted by Dick Applebaum

For those considering the Fire...

1) What are the top 3 reasons/attractions?

2) How does this compare with the new Nook Tablet?

1:

Form factor (lighter, easier to hold for long periods)

I'm an Amazon Prime member already for the shipping benefit, so tight integration w/their instant videos is a plus

Amazon's liberal return policy: I'm confident if it doesn't live up to the hoopla then I can return it for a full refund no questions asked

2:

I think the nook tablet looks like a nice device, and the boost in specs justifies the slight extra in price. BUT, I don't need that slight extra so I'm sticking with the fire. I say I don't need the extra because I think the kindle fire will do all its basic tasks (at least the ones I'm interested in) very well: read e-books, play video, etc.

I could see the boost mattering for casual web browsing, but I think Amazon's Silk browser will potentially help that more than the extra memory the nook will have. As far as storage space, I have unlimited 4G mobile hotspot on my phone so my wifi devices can always connect through that and I can comfortably "live" in the cloud and don't require lots of local storage.

uplate · November 10, 2011 7:16AM

Quote:

Originally Posted by Dunks

I can see alot of people spending $200 for the web browser, 99c for handful of apps and then shafting the rest of the paid services.

I think this will be the common case.

Scary when you think that apple makes a profit on each iPad and then profits on apps/music/video/book/magazines. Amazon will lose on each unit then hopes to make it up on content. The break even point in content purchases is probably close to the price of the Fire.

drdoppio · November 10, 2011 7:17AM

Quote:

Originally Posted by Dick Applebaum

For those considering the Fire...

1) What are the top 3 reasons/attractions?

2) How does this compare with the new Nook Tablet?

I am considering it, here are my top reasons:

Form factor. Similar to a paperback, only slightly larger than the original Kindle's 6" screen. Light. Decent ppi (128% of iPad2). Suitable for movies (widescreen).

Ecosystem. Amazon has my trust to 100%. Excellent customer support, great return policies, unmatched range of offerings. The Amazon App Store is more than sufficient for what one would run on the Kindle Fire, and is only getting better.

Price (not going to ignore the elephant in the room). At this price point I am easily considering two or three devices.

As to how it compares to the Nook, I expect the devices to offer similar experience. I was not impressed with the previous Nooks the I tried at B&N, but I assume the build of the new one is good. As to Kindle, my wife has the e-ink one which is built great, and I expect the Fire to match it. Overall, because of the better ecosystem of the Kindle, the expectedly better build and the lower price, I would prefer it to the Nook today.

Edit: karmamule posted a very similar list before me that I had not read as I was busy composing my own post. I hope I don't get an injunction over being a copyist.

drdoppio · November 10, 2011 7:24AM

Quote:

Originally Posted by Firefly7475

At the end of the day, nobody wins.

For each 4 Kindle Fires sold:

Amazon loses the difference between what it cost them and the price they sell at, let's say 4x25$=100$.

Apple loses the profit from an iPad sale that doesn't materialize (using the survey from yesterday as a predictor in lieu of better info), or roughly $200.

Four happy buyers win.

strask · November 10, 2011 7:41AM

It is very clear that the FIre will be a hit this holiday season. It's a great gift at a good price. Ultimately, though, I can't imagine that the 7 inch form factor will ultimately be the thing that undoes the iPad. This thing is hot right now for one reason and one reason only - an unsustainable price point timed perfectly to the holiday shopping season. How many books or movies will Amazon have to sell in order to offset this loss? And what happens when they have to re-price the item to keep it inline with the cost of making it (see recent Netflix disaster.) Eventually, this item will be a $250 item, or more, and the full size tablet will come out and will be about $400 and suddenly these things won't be offering the same kind of competition to the iPad that they seem to be now.

Also, see this article in PC World, questioning the validity of the study:

http://www.pcworld.com/article/24352...r_does_it.html

dick applebaum · November 10, 2011 7:42AM

There is something going on here... just not sure what.

No reason to disbelieve these estimates vis a vis any similar estimates for other tablets,

Amazon is expected to sell 5 million Fires by the end of December.

Last quarter Apple sold 11.12 million iPads

Here is a chart that shows Apple's reported iPad sales with estimates for the just ended quarter (Note Apple's 4th Quarter ended September.

iPad sales estimates...

I can't find a recent estimate for iPad sales for the quarter ending December. So, I'll SWAG it:

-- Apple will have an extra week in the December quarter

-- Apple has very bullish guidance for the December Quarter

-- In a similar period last year, there was a ~90% QoQ growth.

Lets assume that Apple will sell 18 million iPads by end of the December quarter.

For purposes of comparison:

So, in 1/2 quarter or 6 1/2 weeks Amazon will sell 5 million Fires.

In a similar period of time (last quarter) Apple sold 5.6 million iPads.

In a similar period of time (this quarter) Apple will sell 9 million iPads.

Really?

MacPro · November 10, 2011 7:44AM

Forgetting the iPad v the rest discussion for the moment, this is simply accelerating the end of the Windows PC. Many, many folks in this buying category (i.e. low cost) won't bother buying a replacement PC like they normally do because theirs is f***d up and the cost of repair is more than a new one (the main reason people buy PCs). The Tablet revolution is unstoppable and as with the computer market, Apple will have 80% of the high end tablet market and most of the profits and others will share the low end and earn scraps or make losses. I stress I said Winblows PCs era, Macs will continue to sell in ever increasing numbers.

conradjoe · November 10, 2011 7:49AM

Quote:

Originally Posted by Dunks

$200 is A pretty compelling price point, but if they're losing that much per device it's going to be a bumpy ride for the next few months. I can see alot of people spending $200 for the web browser, 99c for handful of apps and then shafting the rest of the paid services.

I can also see a lot of people get into the habit of streaming movies and buying books and music and lots of other Amazon products, even those that they might have schlepped to the mall for previously. Convenience wins in modern America.

Me, I'd snap one up if it could be rooted in order to install ICS. As of now, I'm waiting for a less locked-down tablet with better specs for cheaper.

springer9999 · November 10, 2011 7:59AM

The touchscreen is not gorilla glass - Amazon claims it is a durable new technology. It's okay as an e-reader I guess but I'll stick with an iPad.

I've had an iPad since May 2010 and it's worked perfectly every day. My brother got a kindle in Feb 2010 and cracked his screen 5 months later. He's not even sure how it happened.

conradjoe · November 10, 2011 8:02AM

Quote:

Originally Posted by ncee

26% of Amazons customers, when asked, said they were considering purchasing the Fire over the iPad.

Ummm.....no.

26% of the people who either bought a Fire or who are going to buy one had previously planned to buy an iPad, but will instead delay their purchase of an iPad. J-Rag doesn't get it, but I think it is clear enough for most normal people to understand.

26% of the 5,000,000 Fires to be sold means that somewhere around one or one and a half million fewer iPads will be sold in the near term.

This stuff is not so hard to figure out. It may, however, be hard for some to deal with it.

jragosta · November 10, 2011 8:05AM

Quote:

Originally Posted by DrDoppio

For each 4 Kindle Fires sold:

Amazon loses the difference between what it cost them and the price they sell at, let's say 4x25$=100$.

Apple loses the profit from an iPad sale that doesn't materialize (using the survey from yesterday as a predictor in lieu of better info), or roughly $200.

Four happy buyers win.

Other than the fact that your math is wrong.

The survey (even if you believe it) says that 26% of early adopters who have bought a Fire or plan to buy one soon will delay or cancel their purchase of an iPad. There are a lot of problems getting from that to your "for every 4 Fires sold, Apple loses an iPad sale" conclusion:

1. Apple is selling them as fast as they can make them. Even if someone else doesn't buy, Apple won't lose a sale - someone else is waiting in line.

2. There's absolutely no reason to believe that all of the people who were considering an iPad would actually have bought one.

3. In fact, these are alleged 'early adopters'. We're now 2 years into the iPad era. 'Early adopters' who don't have an iPad are either lying about being early adopters or have something against Apple - and wouldn't have bought an iPad, anyway.

4. The number of people who allegedly delayed their iPad purchase is about 1% of the total sample - well within the margin of error. There's no way to extrapolate such a small number.

That said, I expect the Fire to sell well. It's a cheaper alternative ($200 vs $500-800) and it wouldn't be surprising to see lots of people buy them. I just don't think that very many people will buy them instead of an iPad. In addition to, maybe.

conradjoe · November 10, 2011 8:09AM

Quote:

Originally Posted by Dick Applebaum

For those considering the Fire...

1) What are the top 3 reasons/attractions?

2) How does this compare with the new Nook Tablet?

1. Great price.

2. I would use it to surf the web (with WIFI) and watch TV/Movies anywhere anytime.

3. Apps?

1. It is $50 cheaper for similar utility.

2. The Nook has an SD card, so it has a good amount of storage for Movies and Music.

3. Fewer Apps?

And the all-important No. 4: Which one can be rooted and have ICS installed?

Amazon ramps up Kindle Fire production to 5 million units in 2011

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