Amazon’s Kindle Fire – the price is right ::Macquarie Research,

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AMZN’s Kindle Fire – the price is right
Event
 Amazon unveiled its first tablet – “Kindle Fire” – to join the non-Apple camp,
available from Nov 15th at US$199 (lower than our expectations of ~US$250). As
we previously highlighted, though there is a sea of competition in the non-Apple
space (Acer, Asus, HTC, Samsung, RIMM, LGE, etc.), Amazon could be a key
winner in Android as it has three distinct advantages that helps it stand out from
the crowd – a) its built-in digital eco-system, b) retail pricing strategy, and c)
strong brand name.
 Thus while the Android tablet camp looks set for a shake-out, we believe AMZN’s
strong brand presence, full digital eco-system, offer to a free-bundle 30-day Prime
trial (5m+ users already, US$79 per year) and attractive pricing makes Kindle Fire
a standout winner amidst the competition. In Asia, we believe key beneficiaries
are suppliers such as E-ink/LGD (panel), Wintek and potentially TPK (touch
panel), TXC (Crystal) and Quanta (ODM). In addition, J-Touch and Ilitek (touch
controller) are also widely perceived to be beneficiaries in the supply chain.
Impact
 Kindle Fire’s features. The Kindle Fire has a 7-inch screen, weighs 14.6
ounces, and has an 8GB memory and 1 GHz Dual Core TI processor
(significantly faster than rival Nook Color, which uses a single core 800 MHz
OMAP). O/S-wise, Amazon is using a “forked” (i.e. customized) version of
Android 2.3 with a mobile browser named “Silk”. This is important as we think
“forking” the O/S will increasingly allow players like AMZN to co-opt the existing
Android platform and make it their own.
 Retail price attractive. Most importantly, Kindle Fire’s price was set even lower
than our expectations (of ~US$250) at US$199 retail, which is a very compelling
offer in our view. Unlike PC (Acer, Asus) or smartphone brands (Samsung, HTC),
AMZN has a built-in digital eco-system just like Apple. It offers access to MP3
songs/movies/videos, its own apps/games and (just like Apple) storage space in
the cloud for users to save/access everything.
 Shake out in the Android camp. Given most of the other Android tablet players
are priced in the US$399-499 range, an AMZN tablet hitting stores at US$199
(with a 30-day trial for the Amazon Prime service) should be attractive enough to
stimulate demand. Amazon’s complete eco-system plus low pricing will put
pressure on other non-Apple players to match this offering, in our view. Thus
while the Android tablet camp looks set for a shake-out, AMZN’s strong brand
presence, full digital eco-system, offer to a free-bundle 30-day Prime trial (5m+
users already, US$79 per year) and attractive pricing makes Kindle Fire a
standout winner amidst the competition.
 Don’t forget about e-readers! Lost in the mix, three new e-readers were also
announced by AMZN, with Kindle priced at a very low US$79 (Kindle touch for
US$99, 3G Touch US$149). These price points help to sufficiently distinguish
them from Kindle Fire, helping AMZN avoid cannibalization of its e-readers in our
view. We believe Amazon will use Kindle as its key device to secure its leading
position in the ebooks market while the tablet should be targeted at the growing
space of multi-entertainment such as music and video.
 Supply chain plays. With leverage into both Kindle Fire and e-readers, we
believe E-ink is a standout beneficiary and Kylie Huang has set its TP to NT$82.
Other suppliers for Fire are Wintek/J-Touch and potentially TPK (touch), Ilitek
(touch controller), TXC (Crystal), LGD (panel) and Quanta (ODM).