Amazon.com Inc.(AMZN) is trying to gain a foothold in the intensely competitive tablet market with the shipping of Kindle Touch 3G across 175 countries from April 27. The device is now available for pre-orders and will be available in six additional languages namely German, French, Italian, Spanish, Brazilian, Portuguese and British English.
The company entered the tablet market with the shipping of Kindle Fire in late 2011. This segment is already crowded with tablet makers such as Research In Motion Ltd. (RIMM), Hewlett-Packard Co. (HPQ), Dell Inc. (DELL), Samsung, Cisco Systems Inc. (CSCO) to name a few. Apple Inc. (AAPL) is leading the race so far, with record unit shipments of its iconic iPad. According to the research firm IDC, Kindle Fire is currently iPad’s most significant competitor, having captured 16.8% of the tablet market (4.7 million units shipped during the fourth quarter of 2011), followed by Samsung, which had a 5.8% share of the market.
The Kindle Touch 3G is the touchscreen version of Amazon’s popular eBook reader. The device, like the previous Kindles will offer Wi-Fi support. However, free and global 3G connectivity is one of its main advantages when compared to the wi-fi only Kindle Touch.
The new Kindle will allow readers to browse all the passages in a book, its ideas and characters, and check details on them from Wikipedia. Besides, Kindle Touch 3G will also be fitted with built-in speakers that offer support for text-to-speech, audiobooks and mp3s.
We view Amazon’s expansion into the tablet market as a defensive move, designed to protect its leading share of the e-reader market and 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 itsgrowth, near-term earnings will remain under pressure.
Currently, Amazon has a Zacks #4 Rank, which implies a Sell rating in the near term.
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