Amazon "defined and dominated" low-end tablet market with 6 million Kindle Fires

By Katie Marsal
Monday, January 30, 2012, 07:46 am PT (10:46 am ET)

While Amazon isn't selling half as many Kindle Fires as iPads, investment bank Stifel Nicolaus said Monday that first quarter shipments of the new tablet rose to 6 million, placing the Fire's ramp-up on par with that of the original iPad while carving out a strong-hold on the low end of the market this past holiday season.

Analyst Jordan Rohan dubbed it "quite impressive" that the online retailer has used its "distribution prowess to define and dominate the low end of the device ecosystem" in the face of big competition from Apple and other Android device makers.

He said that even if Amazon makes no incremental contribution on the sale of the Kindle Fire hardware, software attach rates for apps and media downloaded to the tablets would correlate inversely with the hardware price and could drive real upside in its North American media segment revenues.

"Amazon's device proliferation strategy has broader implications than most appreciate," Rohan explained in a note to clients. "Tablets including iPad and Kindle Fire are rapidly taking share from PCs and notebooks. Kindle Fire has staked out an important market position due to its loyal Amazon customer base and attractive (low) device pricing."

Amazon's estimated 6 million Kindle Fires represent just a fraction of Apple's record 111% rise to 15.3 million iPad 2 shipments during the same time period. But Rohan argues that there's strategic value in Amazon's Kindle Fire becoming the third major device ecosystem after iOS and Android —one that will reflect in revenues and margins longer term.

Looking forward, the analyst believes the next logical move for Amazon is to equip the Kindle Fire with a video subscription service to compliment its existing on-demand pay model, and Prime Free Videos service.

Rohan's estimates aside, Amazon has never formally provided sales figures for any of its Kindle-branded hardware products outside of saying last month that it was shipping a combined 1 million units per week. While that practice is expected to remain intact, the online retailer may provide some additional color on the success of Fire when it reports fourth quarter results on Tuesday.

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