Amazon Kindle Phone On Tap, Says Citigroup
Amazon's Kindle Phone is reportedly being made in Taipei for somewhere between $150 and $170, according to Citigroup's Mark Mahaney. Is this prudent?Now that Amazon's (NASDAQ:AMZN) Kindle Fire tablet is nearly a week out the door, the high-tech media can drool over the next hot gadget rumor: the Kindle Phone.
Citigroup analyst Mark Mahaney told clients in a research note (via AllThingsDigital) that hardware checks in Taipei indicate the e-commerce giant will launch a smartphone in the fourth quarter of 2012. Mahaney wrote:
The phone may only cost between $150 and $170 to manufacture, with the company likely to sell it for something close to that price, Mahaney wrote. That makes sense, considering that the Kindle Fire sells for $199 and components analysts from IHS peg that tablet's manufacturing cost at $201.70. No word yet on what operating system Amazon would use for its phone, though smart money suggests Google's (NASDAQ:GOOG) Android platform because it's free and the company has a great comfort level with it after using it for the Fire and building an entire application store around it. Whatever the phone's components, cost to make and OS is, there are plenty of proponents and opponents of a Kindle Phone. Proponents see the Kindle Phone as another shopping vehicle, a more mobile extension of the shopping-focused Kindle Fire. Imagine Amazon baking its one-click purchasing mechanism into a phone. Consumers could point their Kindle Phone at an item, scan it in and click a button to buy it. Amazon has already built an augmented reality app called Flow to let shoppers use their iPhone camera to scan goods for more information.Based on our supply chain check, we believe FIH is now jointly developing the phone with Amazon. However, we believe that Amazon will pay NRE (non-recurring engineering fees) to FIH but the device and multiple components will actually be manufactured by Hon Hai's TMS business group (the same business group that makes Amazon's e-reader and the 8.9-inch Amazon tablet). We believe the smartphone will adopt Texas Instrument's OMAP 4 processor and is very likely to adopt QCOM;s dual mode 6-series standalone baseband given QCOM has been a long-time baseband supplier for Amazon's e-reader.
Opponents note the obvious: the smartphone market is crowded, cutthroat and increasingly litigious. If Amazon uses Android it will likely have to pay Microsoft for that pleasure, as roughly a dozen companies who have used the open-source OS for smartphones and other products have already done. Current Analysis analyst Avi Greengart echoed some of those concerns, but told eWEEK he wasn't ruling out the prospect of a Kindle Phone because Amazon clearly has broad ambitions and is building an ecosystem of digital content and cloud services--not unlike what Apple has done with its iPhone and iPad. Greengart wrote:
Tablets are nice to have, but phones are necessities. However, the phone market is crowded and Amazon's primary market, the U.S., is carrier-dominated. Just because Amazon launched a tablet does not mean it will launch a phone, and if it does launch a phone there is no easy guarantee of success, particularly if it intends to compete on price, as implied by [Citigroup's Mahaney]. Competing on price works for tablets where consumers pay the full price of the product. With phones, getting higher carrier subsidies is key - consumers rarely see the true price of the phone. Besides, Samsung and Apple have far greater economies of scale, and some of their money-losing competitors are already effectively selling their devices below cost.Greengart's is a well-reasoned argument. The pie for the smartphone market doesn't seem to be shrinking anytime soon, which may prove making a phone too juicy to pass up for Amazon, which rarely misses an opportunity to sell more goods and services.