Amazon.com's profit margins could shrink to near or below zero next year as it sells the Kindle Fire for US$199, losing about US$10 on each sale; company's profit margin was record-low 2% in Q2 2011

Cindy Allen

LOS ANGELES , October 18, 2011 (Industry Intelligence) – Amazon.com Inc. will see its profit margins shrink next year as it prices it new tablet computer, the Kindle Fire, for US$199, less than half the price of the cheapest Apple iPad, Bloomberg reported Oct. 17.

Amazon's profit margins hit a five-year low last quarter. IHS Inc. estimates Amazon will lose $10 on each Kindle Fire it sells. Barclays estimates Amazon will sell roughly 4.5 million Kindle Fires in the fourth quarter, versus 3.3 million iPads sold by Apple.

Jeff Bezos, Amazon's CEO, says he expects sales of other merchandise to make up for money lost selling the Fire.

Amazon is trying to carve out a piece of the lucrative tablet market, which Forrester Research Inc. has said will grow around 50% per year through 2015. Bloomberg reported. However, selling the Fires at a loss could push Amazon's profit margins below 0%, The company had a 2% operating margin in the second quarter.

The primary source of this article is Bloomberg, New York, New York, on Oct. 17, 2011.

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