Should Apple Be Worried About the Kindle Fire?

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Many have tried. Many have failed.

Apple's (NAS: AAPL) iPad may have finally met a rival that can compete in a meaningful way with the dominant tablet. Amazon.com's (NAS: AMZN) Kindle Fire has assaulted the tablet market in a way that most other Android systems hadn't tried: coming in from below. The $199 price tag is awfully appetizing, particularly in the midst of the holiday shopping season.

Morgan Keegan is out with a research note saying that it believes the Kindle Fire was able to coax tablet buyers who would have otherwise opted for a shiny iPad 2 into picking up the 7-inch Android tablet. Analyst Travis McCourt believes that between 1 million and 2 million iPad unit sales instead went to Kindle Fires over the holidays.

At a minimum, that would mean missing out on $500 million in sales, with McCourt's low-end estimate and the $500 entry-level price point. At 2 million units, that would be at least $1 billion in lost revenue, with the same $500 price tag. Apple's iPad average selling price tends to be much higher though, $628 last year, so the figure could easily approach $1.25 billion.

Amazon has already said it has moved "millions" of Kindles, with the Kindle Fire being the most popular member of the family. The e-tailer continues to be vague with juicy details like actual unit sales figures, but other would-be tablet competitors like Motorola Mobility (NYS: MMI) and Research In Motion (NAS: RIMM) can't even break 1 million, much less multiple millions.

The distinct possibility that the assault from below is working adds some credibility to the notion of an iPad price cut. A separate report from dubious Digitimes even suggests that Cupertino may be considering moving iPad 2 pricing all the way down to $299 once two new iPad models hit. Digitimes is notoriously hit or miss, so set your expectations accordingly. A cheaper iPad 2 is more likely than the rumored 7-inch this year, but I think $399 is much more characteristic.

Moving to $299 would be a serious threat to the lower-end rivals, since the only tablet competitors that have even glimpsed success have thanked low price points for their fortunes. But then again, it's not like Apple to give up profits for the sake of growing market share; it's perfectly happy to boast the most profit share.

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At the time this article was published Fool contributorEvan Niuowns shares of Amazon.com and Apple, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Apple, Amazon.com, and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, Amazon.com, and Apple.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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