Amazon’s (NASDAQ:AMZN) Fire Phone failed to impress

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By Hanson So on October 30, 2014 Technology & Software

Right from the beginning, things were not looking good for Amazon.com’s (NASDAQ:AMZN) Fire Phone. The phone never got too much attention, and 20 days after the launch, Amazon (NASDAQ:AMZN) was able to sell only 35,000 units. After 2 months, it was forced to reduce the price to $0.99, which clearly shows that the phone is not doing well.

According to a conversation held between CFO Tom Szkutak and the analysts about Amazon’s (NASDAQ:AMZN) 3^rd quarter results, the company had to depreciate $170 million in the inventory, and the supplier commitment expenses affiliated with the gadget. Amazon (NASDAQ:AMZN) still own $83 million of the Fire Phone Inventory, even after the depreciation.

A comparison of Amazon’s (NASDAQ:AMZN) Fire Phone and Microsoft’s (NASDAQ:MSFT) tablet:

Microsoft (NASDAQ:MSFT) went through a similar situation, with its tablet about a year ago, when it had to depreciate the inventory of its new tablet entry – the Surface RT. After 8 months of being in the market, Microsoft (NASDAQ:MSFT) decided to depreciate $900 million of Surface RT’s inventory.

Compared to Microsoft (NASDAQ:MSFT), Amazon’s (NASDAQ:AMZN) write off does not seem so bad, even if it is on per-month basis. Studying the depreciation every month is actually a more fair and reasonable way of analyzing the situation.

Microsoft’s (NASDAQ:MSFT) further Surface RT Inventory was calculated to be around 6 million units. As per similar calculations, Amazon (NASDAQ:AMZN) is assumed to have 874,000 extra Fire Phones that the company is unable to sell. However, looking at the inventory, which is worth $83 million and has a bill of around $205, indicates that Amazon (NASDAQ:AMZN) still has hopes of cashing out around 400,000 units.

Reason behind the failure of Fire Phone:

Amazon (NASDAQ:AMZN) is not a new company in the hardware market. The question is, then how Amazon (NASDAQ:AMZN) ended up miscalculating the public’s interest in the Fire Phone. The first mistake that Amazon (NASDAQ:AMZN) made with the Fire Phone was choosing AT&T (NYSE:T) as its exclusive carrier. Due to this restriction, the target consumers were reduced to about one-third of the total. The Fire Phone was not strong enough to force consumers to change mobile carriers.

Another mistake was pricing the Fire Phone at the high end of the market. Amazon (NASDAQ:AMZN) is known for its reasonable prices. One of the main reasons why the Kindle Fire tablets were such a huge hit amongst consumers was its low price.

Amazon (NASDAQ:AMZN) had to increase the Fire Phone’s price due to its partnership with AT&T (NYSE:T). Amazon (NASDAQ:AMZN) also placed the phone price high because it wanted to make sure that people who shopped at the site were shopping there to spend money and not to save money.

Amazon (NASDAQ:AMZN) might have had better chances at remarkable sales, if it had no carrier restriction and a reasonable price.

After the initial downfall that Microsoft (NSADAQ: MSFT) saw, things did grow better for the Surface RT because of the company’s commitment and consistency. Amazon (NASDAQ:AMZN) can still turn things into its favour by rectifying its mistakes.