What’s happening at Amazon? According to this article by Jon Mitchell, sales of e-ink Kindles have tanked. Unsurprisingly, there is clearly evidence of cannibalisation by the Kindle Fire: E Ink Holdings, a major Amazon supplier of screens, made its first quarterly loss in two years. The company reported that “our major customer was too optimistic about its sales in the fourth quarter of last year and ordered too much from us. That made the customer order almost nothing from is in the first quarter.” For “major company” read Amazon.
This, in isolation, might be expected. Yet all is not well with the Kindle Fire. After taking nearly 17 percent of the tablet market in the last quarter of 2011, the first quarter of this year showed the Fire’s share down to four percent with fewer than 700,000 units sold compared with Apple’s 11.8 million.
One analyst, Paul Santos of Seeking Alpha, believes that all this calls into question Amazon’s strategy of dominating the e-reader space. Along the way he makes the valid point that Amazon is one of the tech market’s least transparent companies.
Shareholders aren’t even entitled to know how much stuff it sells, namely they have no clue, from the company, as to how many Kindle eReaders and Kindle fires are sold. Sure enough, the company quite often repeats that these are the products that sell the most; that they are seeing growth; that – and this is said often – they like what they see. But no concrete numbers are put forward, and at times there are pretty obvious clues that the truth is very far from the optimism expressed by management. This is one of those times.
Santos’s conclusion is stark:
The imminent failure of Amazon.com’s strategy to dominate the e-reader space, as illustrated by an estimated 75%+ drop on Kindle eReader sales, was what brought about Amazon.com’s much celebrated gross margin improvement. This is simply not a positive development. This is another development confirming the migration of e-reading from Amazon.com’s controlled environment, to a larger set of devices. These devices run Apple’s (AAPL) iOS or Google’s (GOOG) Android. The Kindle fire suffering the same fate so early, also means that Amazon.com’s attempt to mitigate Apple and Google’s dominance has already failed. This failure certainly doesn’t seem to be priced in the market.
Finally, my comment: Amazon is valued at 13 times more than Apple. Despite stunning success and world domination of the tablet market, Apple’s Price/Earnings ratio is under 14 while Amazon’s is in the stratosphere at 184
Yahoo figures today . ↩