Is the Kindle Fire's Flame Burning Out?

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Kindle (AMZN) turned heads last year with its economically priced tablet, but necks are apparently stiffening up these days.

Tech tracker IDC is reporting that Amazon sold just 750,000 of its $199 Kindle Fire tablets during the first three months of the year, well off the 4.8 million units that it sold during last year's fourth quarter.

There are plenty of perfectly good explanations that account for part of the slide.

  • Of course sales will fall sequentially in the first quarter. Tablets are hot sellers during the holiday shopping season.
  • Amazon introduced the Kindle Fire in November, so it received a lot of media attention at the time.
  • Apple (AAPL) rolled out the new iPad in March, stealing media coverage.
  • Along with the new iPad's launch, Apple decided to continue selling the entry-level model of the iPad 2 at a $100 discount to the original $499 price.

All four factors definitely weighed down Amazon's momentum earlier this year, but things are more grim than even the explanations suggest.

Take Two Tablets and Call Me in the Mourning

Did tablet sales slip after the holidays? Absolutely. Apple sold 15.4 million iPads during the final three months of 2011, only to sell just 11.8 million iPads during the first three months of 2012.

However, the 23% sequential slide is mild compared to Amazon's 84% decline for the Kindle Fire.

IDC claims that the seasonal slowdown resulted in a 38% drop in worldwide media tablet shipments. Why did Amazon fare so badly? Apple actually increased its share of market this past quarter, while Amazon went from 17% during the holidays to 4% now.

Amazon did garner plenty of media coverage and hype during the mid-November debut of its tablet, but that also means that it only had half a quarter of market availability.

Apple's decision to shave the price of the iPad 2 to $399 in March played a part, but that still leaves us to wonder what went wrong in January and February, before consumers knew about the cheaper iPad 2s.

Besides, even with the lower price of the iPad 2, it still costs twice as much as a Kindle Fire.

A Moving Target

All those "Apple did this" and "Apple did that" excuses for the Fire's softening sales don't explain everything.

While Amazon was the undisputed distant silver medalist during the fourth quarter, Samsung passed it up for second place this past quarter. Amazon is now being fitted for a bronze medal, with Lenovo and Barnes & Noble's (BKS) Nook Tablet not too far behind.

Things may get hairier. Target (TGT) -- the cheap-chic department store chain -- will stop selling the Kindle Fire this month. Target may have thought that stocking the cheap tablets would be a good way to increase its sales in consumer electronics, but ultimately the chain realizes that it doesn't want to arm a rival that has an ecosystem in place to replace Target's DVDs, CDs, video games, and books with digital editions that Amazon delivers directly.

If other retailers follow Target's lead, Amazon will be back to relying on pushing its proprietary products on its website's landing page.

Fire Sale

"We expect a new, larger-screened device from Amazon at a typically aggressive price point," IDC predicts, echoing what many analysts believe will happen. The seven-inch Kindle Fire may soon have a larger sibling to match the 9.7-inch iPad, and obviously it will sell for a lot less than Apple's market-defining tablet.

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Maybe that will help, but it obviously won't be enough to close the gap with Apple. As makers of Android-fueled tablets try to battle it out on price, Apple's pedigree and developer-rich App Store make it the runaway champion.

If Amazon and other tablet makers let Apple be the one to replace textbooks with e-readers in the classroom, the battle will be over. And it won't just be Amazon licking its wounds as it wonders why the Kindle Fire never set the world ablaze the way it had originally wanted.

Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of and Apple. Motley Fool newsletter services have recommended buying shares of and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and writing puts on Barnes & Noble.

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