The Amazon (AMZN) Kindle Fire is fast becoming the most controversial device on the planet.
Is it growing or is it fading? Is it really a threat to Apple (AAPL), or just to other tablet companies and wannabes like Samsung? Is it a brand new paradigm or the biggest mistake since Bob?
Based on conversations, reading and experience, here is what I believe is going on:
Amazon is moving customers from its first-generation Kindle ebook reader to the Fire as fast as it can. Orders for eInk screens are going away, because the recent retail price of about $74 (from last Christmas) is too low to be of interest. This may be a problem with some customers who, frankly, care more about the printed word than anything on a screen. (I married one of those.)
Fire usage for digital purchases has declined steadily since Christmas meaning Amazon must find some way to goose it up.
Fire sales in the first quarter weren't as bad as some are making out - this is a seasonal business that peaks at Christmas and hits a lull in the first quarter.
Expect announcement of a new line of Fire tablets, including one with a larger screen, this spring.
What's important about the Fire, in contrast to any other tablet on the market, is that it's designed as an interface to a complete shopping experience. Other ecosystems - Google (GOOG), Apple, Microsoft (MSFT) - can interface with digital stores. But Amazon runs a real store. (I just bought some toothbrush tips.)
It's Amazon's ability to make use of this interface a shopping habit that will determine the ultimate fate of its tablet. That's where the "free video" comes in, since you get it by signing up for the company's "Amazon Prime" shipping service, which can get goods into your hands free within two days of an order.
Thus it's the full top-line on general sales that you need to watch. That doubled from 2009 to 2011, from $24 billion to $48 billion. Given the seasonality of the business, the valid comparison on total sales is with last year's spring quarter, and there you're up over 30%, year-over-year.
Look for a slight increase for the current quarter, a bump to somewhere around $15 billion in the third quarter, and something north of $21 billion for the fourth quarter.
Those are the numbers that count, for both Amazon management and its investors. Meet or beat those expectations and the rest is just noise. Fail and you'll go down hard.
