Amazon.com's Race to the Bottom

Always one to go low, Amazon.com (NASDAQ: AMZN  ) may be about to go even lower with its popular Kindle Fire tablet. TechCrunch is reporting that the e-tail juggernaut is preparing to launch a $99 Kindle Fire with a seven-inch display.

Amazon is reportedly going with a 1280 x 800 resolution along with a processor from Texas Instruments (NASDAQ: TXN  ) . If those specs sound familiar, that's because the current $199 Kindle Fire HD bears the same characteristics. The company continues to put pressure on Apple's (NASDAQ: AAPL  ) iPad mini, and also recently dropped the price of its 8.9-inch Kindle Fire HD, which is now $60 cheaper than Apple's smaller model. A possible $99 model could potentially add even more heat, costing less than a third of an entry-level iPad mini.

Here, have some cost savings
When Amazon reduced the price of its bigger tablet, the company said that it was passing along cost savings that have materialized since the initial launch as Amazon increased production volumes. The possibility of a $99 Kindle Fire would follow in those same footsteps, and also implies that costs have come down significantly since launch.

In November, IHS iSuppli estimated that Amazon's component costs including manufacturing totaled $174, so costs must have had to come down significantly for Amazon to make this move. The largest component for any tablet in general is always the display and touchscreen assembly ($64 of iSuppli's November estimate). That was five months ago, and any cost reductions related to the display would go a long way in facilitating a retail price drop.

Going with TI would show how cozy the pair is, since TI publicly exited the mobile chip sector last year. TI processors have powered every Kindle Fire to date, and Amazon is undoubtedly the biggest buyer of its OMAP chips.

IDC Research Director Tom Mainelli said the $99 price point seems within reach for Amazon, since the company does have the required scale to make it worthwhile.

Stuck in the middle with you
With Google's (NASDAQ: GOOGL  ) upcoming second-generation Nexus 7 expected within a matter of months, a $99 Kindle Fire would also be a viable threat to the search giant if it were still targeting the original $199 price point. Google similarly pursues a strategy of little to no hardware margins for most of its devices (other than its new high-end Chromebook Pixel), so the company can also be expected to pass along cost savings to consumers wherever possible.

Although Google has also been following Apple's lead with pushing higher-resolution displays, such as the one found in the larger Nexus 10 and the aforementioned Chromebook Pixel. If the search giant opts for a sharper display in the second-generation Nexus 7, that's going to add a lot to the bill of materials and may prohibit a more aggressive price point. On the other hand, a higher-resolution Nexus 7 would also be positioned higher than a $99 tablet.

There aren't a whole lot of rumors about that device yet other than speculation that Google is going with a Qualcomm Snapdragon processor instead of an NVIDIA one.

Android rises
IDC recently predicted that Apple's tablet market share would slip in the coming years to "just" 43.5% by 2017. At the same time, Android is expected to overtake iOS this year at nearly half the market. Low-cost devices with smaller form factors are expected to be the primary drivers of increased uptake among consumers, with a total of 190.9 million tablets expected to ship this year worldwide.

While that sparked some initial negativity around Apple, the pessimism is slightly misplaced because we're still talking about one company selling 88 million tablets (with actual hardware margins) alone.

Although Amazon's Android has gone rogue, it still gets bundled into the broader Android category. Still, a $99 Kindle Fire is even deeper into impulse-buy territory.

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Comments from our Foolish Readers

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  • Report this Comment On March 20, 2013, at 5:46 PM, Varchild2008 wrote:

    Either that or Amazon recognizes that the bigger their losses are the higher the share price goes...so what the heck???? Lower the price of the tablets....rack up bigger losses.....make up for the losses through higher share price action when they report.

    Just a thought.....

  • Report this Comment On March 20, 2013, at 6:29 PM, Secs27 wrote:

    There is no demand for the kindle which is why amazon has to give it away. Don't believe the hype that amazon is telling the media that their costs have come own. Just like everything else amazon does, it is another deception.

    Have you ever used the kindle hd? It is absolutely the worst tablet on the market. Slow, freezes and crashes. It is only designed to get the less Intelligent to buy from their website. The nook hd and the Google nexus are far superior to the kindle. The iPad 4 would be the superior device, but that is in another price category.

    Even amazons website no longer offers advantageous pricing. Before you buy something on amazon, search for it on thefind dot com or even eBay. You 'll find your item for much less expensive and many vendors offer free shipping and no sales tax. Amazon charges $79 for the privilege. That smiley face arrow that you see on amazons boxes is representative of Bezos laughing at you all the way to his bank when he thinks of another uniformed customer who paid his high price. If you don't smart shop around, you'll get Bezosed.

  • Report this Comment On March 21, 2013, at 2:54 AM, cooppotter100 wrote:

    One important issue however is the Kindle is a closed - system -- you can not access the Android market - only use Kindle's Proprietary System - this is a huge disadvantage to a lot of users.

    I recently purchased a Novo 7 Venus Android tablet for $149 through a site called TabletSprint -- and this tablet rivals the Nexus 7 for a lot less -- with most of the same features, including a Quad Core processor and a hi-res 1280x800 IPS screen display - Plus a microSD card slot, HDMI, and Front and Rear Cameras, all of which the Nexus 7 doesn't feature --

    Maybe if the Kindle tablets gets better specs like the Venus tablet as well in the future allows more of an open access for those that want it -- but for now, it's really limited in what you can do with a Kindle tablet and what you do have access to.

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