Zacks_Analysts' Blog : Amazon Sparks Fire in Tablet Market - Analyst Blog

Amazon.com Inc. (AMZN) became part of the cutthroat competition in the tablet market with the shipment of “Kindle Fire” on November 14. The company’s first media tablet comes a day ahead of schedule.  

Light weight and priced cheaply at $199, Kindle Fire comes with a speedy dual-core processor, Wi-Fi connectivity and 8GB storage capacity. The device runs on Google Inc.’s (GOOG) Android operating system and offers a plethora of services: Music, TV shows, magazines, app downloads, books, games, etc.

Apple (AAPL) has been dominating the tablet market with its iconic iPad. According to the research firm IDC, Apple holds 68.3% of the tablet market share worldwide, with Google’s Android-based tablets holding 26.8%, and a new entrant Playbook, a Research In Motion (RIMM) product accounting for the remaining 4.9%.

The early launch of Fire is an attempt by Amazon to compete with Apple’s costlier iPad. More importantly, it aims to compete with its rival Barnes & Noble's (BKS) new Nook Tablet. Priced at $249, the Nook will be shipped later this week, in time for the Thanksgiving weekend.

The Amazon device falls short of a few features that the iPad boasts of. The device has a small screen with no microphone, camera or 3G connectivity. Hence, the Fire might not be able to vie against the killer iPad but it’s going to change the tablet scenario.

The competitively priced tablet with a focus on retail would drive book sales, as well as physical goods and varied digital content in this holiday season. Analysts estimate that Amazon might sell 3 million to 5 million Fire tablets in the ongoing fourth quarter.

We view Amazon’s entry into the tablet market as a defensive move, designed to protect its leading share of the e-reader market and also book sales through Kindle. As in any competitive consumer market, share losses are inevitable. But the market leader should continue to grow, as long as the market is expanding. Since we do not expect the growth to taper off any time soon, we remain optimistic about the company’s prospects here.

At the same time, we think there is a certain amount of uncertainty regarding Amazon’s investment plans, which could continue over the next few quarters. While it is true that these investments are going to drive the next phase of its growth, near-term earnings will remain under pressure.   

Currently, Amazon has a Zacks #5 Rank, which implies a Sell rating in the near term.