Daily: Amazon emerges as huge threat to Apple’s earnings growth

Amazon’s announcement yesterday was a very big deal. Here’s my daily today. It’s on Amazon.  I am doing this in two parts with tech articles in this one because I meant to post this part yesterday but I wasn’t able to post after 2PM. The ext daily will cover non-tech.

Everyone in the finance world was mostly focused on the ECB, and to a certain degree on the jobs numbers and Democratic convention in the US. But as the stock market rallied, the notable news was the broadside attack on Apple, the world’s most valuable company, by Amazon. In my view, the latest move by Amazon will be of historic proportions because of what it could mean to Apple’s margins and earnings growth.

As you may know, I am not bullish on Apple’s growth prospects from here. I have consistently said that I believe that 2012 is a transition year for Apple because it will now have to decide whether it needs to maintain market share or margins. But it cannot do both because of the Android menace. In the short term, this has meant and may continue to mean nothing for Apple’s share price given its market darling status. But as the slowdown in earnings growth takes shape in 2013, I expect Apple’s shares to wilt. And given Apple’s size, this will have a profound impact on market psychology and internals.

The Amazon announcement showed Amazon moving aggressively into the tablet space by unveiling a panoply of tablet offerings for different price points in the tablet market. The key here is that Amazon is unveiling its new product at the time of year when it believes it can gain maximum Christmas selling season momentum. So, this is a pure land grab for market share. And the aggressive pricing does reflect this.

Moreover, Amazon’s move was a more broad attack on Apple than was expected by anyone. Everyone expected price points to move down. For example, the revamped Kindle Fire beefs up its processor, doubles RAM memory and has longer battery life while dropping $40 in price. That’s huge – especially given Google’s entry into the market via the Google Nexus 7 at Kindle Fire’s previous $199 price point. But no one knew that Bezos was going to reveal high end hardware that specifically designed to undercut Apple during the Christmas selling season. But that’s what he has done.

Moreover, Bezos has created price pressure for Apple by including features on the new Kindle HD that the iPad does not have, specifically the 4G LTE offering and the huge cloud storage feature. It will be interesting to see what Apple has to say when it unveils the next iteration of iPad later this year, because the thinking was that Apple was going to go down market to beat back the $199 competition from Google and Amazon but now they have serious competition on their own premium turf.

Here’s what I see. Amazon has explicitly decided to take on Apple. Doubts should remain about its hardware capabilities given the barebones offering that the Kindle Fire was. Nonetheless, Amazon always executes well and so I believe they will move a lot of units and significantly erode Apple’s tablet market share. Moreover, Amazon is now signaling that it is allied with Google rather than really being competition to Google. While Amazon has customized Android in a way that eliminates emphasis on Google, Amazon is still tied to the Google Android platform and it uses Android apps, giving Google powerful network effects in its quest to unseat Apple in the mobile space.

Likely, Amazon will move into the phone market at exactly the same time next year because it wants to max out penetration via the Christmas selling season. At that point Apple’s market share in the tablet space will be seriously eroded. But more importantly, Apple’s mobile handset share will have started to erode and Android will already be dominant.

My sense is that the totality of erosion in earnings growth will dawn on the market only by this time, and Apple will suffer a very large drop in share price.

In the meantime, expect more patent disputes as Apple takes on its erstwhile biggest threat, Samsung. But when Amazon joins the fray with customized software, the patent suits will not be successful. 

Bezos Won’t Confirm Phone, but Says More Devices Are in the Pipeline – By Ina Fried and Tricia Duryee – Mobile – AllThingsD

“What is clear is that Amazon is putting several of the key pieces in place that it will need to eventually do a phone.
With the latest round of Kindle Fire devices, Amazon is adding sound input as well as mapping capabilities, things that are nice-to-haves in a tablet but clear necessities for a phone.”

Bezos Says Amazon Likes Android Operating System – By Ina Fried and Tricia Duryee – Mobile – AllThingsD

“Amazon will also be using a customized version of Android on the new crop of tablets, albeit the more recent Ice Cream Sandwich flavor of the operating system.
On top of Android, Amazon has created its own user interface along with a suite of software and services, including the Amazon App Store. With the new Kindle Fire, the company has also licensed map data from a third-party service, widely believed to be Nokia’s Navteq.
Bezos shrugged off the notion that Amazon had any plans to shift away from the Google-created operating system.
“No,” he said. “We like it.””

Amazon announces $499 Kindle Fire HD 4G LTE with $50/year data plan

“Amazon took a direct shot at Apple on Thursday when it unveiled its new Kindle Fire HD 4G LTE, with the same $499 starting price as Apple’s current generation iPad. But the main selling point is a new $50-per-year, 250-megabyte-per-month 4G LTE data plan.”

Amazon Takes on the High-End—Introducing the New Kindle Fire HD Family | Business Wire

This is Amazon’s press release showing it’s declaration of war on Apple. It is notable that Bezos specifically said he will continue to use Android because he likes the platform, in effect aligning him with Google over Apple.

Amazon Challenges Apple With Updated Line of Kindles – Bloomberg

““This wasn’t a product announcement as much as it was a declaration of war,” said Michael Gartenberg, an analyst at market research firm Gartner Inc. “It’s clear that Amazon is going to go after Apple customers. Amazon at this point is not a company Apple can ignore as a competitor.”
Amazon gained 2.1 percent to close at $251.38 in New York, a record high. The stock is up 45 percent this year and trades at 181 times estimated earnings over the next year. That compares with a price to earnings ratio of 14 for Apple and 15 for Google.”

Amazon debuts $299 8.9″ Kindle Fire HD, $119 e-ink Kindle Paperwhite

“The new lineup is led by the flagship 8.9-inch Kindle Fire HD, which has a 1920-by-1200-pixel resolution packed into a screen that is slightly smaller than the 9.7-inch display of Apple’s iPad. The upgraded display is said to have 25 percent less glare than its predecessor with a sharper, clearer picture with better contrast. The 8.9-inch Kindle Fire HD starts at $299 for 16 gigabytes, while a 32-gigabyte model is $369.

Though the new 8.9-inch Kindle Fire HD lineup was announced Thursday, the hardware will not ship until Nov. 20.”

Amazon Announces the New Kindle Fire for $159, Plus the Kindle Fire HD in Two Sizes Starting at $199 – Droid Life

“The new Kindle Fire still rocks a 7″ display, has a new faster processor, double the RAM, 40% faster performance, and longer battery life. It ships on September 14.

The Kindle Fire HD comes with either a 7″ or 8.9″ display with 254ppi, and a 1920×1200 resolution. It’s 8.8mm thick, runs an OMAP4 4470 processor, at least 16GB of storage, HD front facing camera, dual stereo speakers with Dolby Digital Plus sound, HDMI out, Bluetooth, and dual band WiFi.”

Amazon’s Kindle Fire 4G bait and switch — Mobile Technology News

This is an interesting analysis of Apple and Amazon’s modus operandi. Apple tends to overcharge upgraders for premium products, while their base product is already premium priced. I know because I self-installed a solid-state driveon a new MacBook Pro, seeing how expensive the Apple options were. Amazon tends to be a Wal-Mart type of pricer, using volume to make money. And on the Kindle, they take a Gillette approach by selling the hardware at low prices and making money on the repeat follow-on buys – in Amazon’s case, software and content (books and music). With the Kindle, Amazon has changed tack.


Other tech stories

Seesmic acquired by Hootsuite, we cry

“Seesmic’s announcement appears to suggest that the service will soon be put to bed as a standalone offering. Instead, it looks like Hootsuite will integrate its staff and technology into its own operations and continue to be a top competitor in this tough space.”

Hootsuite Acquires Seesmic, This Guy Couldn’t be Happier – Droid Life

With Twitter starting to control its API, 3rd party apps really have to consider whether they have a viable business model going forward. Sesmic didn’t have one.

PSA: Classic Or Value Plan Customers Can Switch To T-Mobile’s UNLIMITED Unlimited 4G Data Plan Without Extending Their Contracts

“-Mobile’s recently announced unlimited Unlimited Nationwide 4G data plan is now live on their official site. The new plan offers unlimited data without fear of data caps, overages or throttling. Now there’s nothing holding you back from consuming all the lewd content the web has to offer.

For those T-Mobile customers currently on T-Mo’s “classic” or “value” data plans, it may behoove you to know that you can switch to this new unbridled unlimited plan without extending your contract. I’ve just spoken with countless T-Mobile customers who successfully made the switch, and even got verification from a T-Mobile rep themselves.”

Samsung: 20 Million Galaxy S3′s Sold and Counting

“It’s only been around 100 days since its launch (wow, time flies), and Samsung is letting the world know tonight that the new sales numbers for Galaxy S3 have officially reached — wait for it — 20 million devices sold. Sweet geebus, that’s a lot of purple phones. It’s not surprising really. The Galaxy S3 was one of the first devices in the history of Android to launch on just about every carrier under the sun, seemingly at the same the time. Samsung did everything right by the S3, and the sales numbers prove it.”  

Apple patent could remotely disable protesters’ phone cameras | ZDNet

“Don’t you just hate it when there’s someone in the cinema taking photos, or talking on their phone? How unfair is it that ‘they’ cheated on their test because they could access the Web, and yet you only got half their marks?

Isn’t it a shame you can’t take a photo of the police officer beating a man in the street because your oppressive government remotely disabled your smartphone camera?

A new patent granted to Apple could do all of the above.”

Samsung challenge: sold the phone, how to keep the customer | Reuters

“Samsung Electronics has built global leadership in mobile phones, but in a fickle industry looks more vulnerable than its nemesis Apple Inc without an ‘ecosystem’ – software, services, content and customer support – to keep its users loyal.”

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