Investors Place Bets on the Future of Amazon's Kindle Fire

Brittney Barrett |

The tech sector was mixed today as segment news influenced share prices more than the see-sawing attitudes of the broader market. Among the major happenings investors were looking out for was the fiscal revenue of semiconductor maker, Micron Technology (MU). The company reported fiscal Q4 revenue surpassing analyst expectations. The improvements; however, were not enough to bolster the stock as an unanticipated decline per share weighed heavily on the company.

Revenue slid 14 percent year-over year for three month period that ended last month. The results were consistent with Q3 levels and Micron sustained a net loss of 14 cents per share.

Analysts had been expecting lower revenue but had predicted per share leakage of only 1 cent. The steep drop had investors on edge, as did a warning that a negative outcome in an antitrust case against Rambus (RMBS) could continue to have deleterious effect on shares.

The losses sustained thus far were reportedly the result of a drop in the sale price of DRAM chips. Other segments of the business, including the NAND flash chips are thriving according to the company.

Shares of the company fell sharply in late day trading.

Micron’s losses for the day were trumped by yet another hard tumble for Netflix (NFLX). The company is down close to 50 percent for the month. Conjecture over the most recent losses has laid blame on the introduction of Amazon’s (AMZN) Kindle Fire tablet. The Kindle Fire comes with a month free of what it calls “prime services,” which includes movie downloads. The Kindle Fire’s free-month doesn’t seem like it would be a huge threat to Netflix bottom line but if their selection beats the too-narrow (according to its critics) library offered by Netflix, it could present a challenge.

Simultaneously, there was mention of competition overseas, especially in Latin America, where Telefonica has plans to expand its own downloading services. Netflix expansion overseas was expected to be among the prime drivers of new business for the company. It helped bolster the stocks after its initial dip following the company’s announcement that it would raise prices.

These threats do not seem extreme enough to account for the dramatic losses for the day. The exit from the stock seems more the result of broad investor panic and a shifting analyst sentiment regarding the future of Netflix.

Another company whose share prices are being threatened by Amazon’s Kindle Fire is Apple (AAPL). The Kindle Fire, Amazon’s $199 answer to the iPad, is being celebrated for its affordability and the range of features it can hold.

Some are under the impression that the new tablet will be bad for the iPad’s  business. Wary investors may be placing bets on Amazon but the whispers on Wall Street seem to be that there is a place for both.

With a hard drive the size of an iPod Nano, the Kindle Fire is no iPad and is unlikely to dramatically detract from sales of the original tablet. Chances are, the company is appealing to a different demographic. Apple is more of a luxury brand and while Amazon’s latest debut is sure to hold appeal; consumers that can afford it will likely still purchase the pad. Meanwhile, the Kindle Fire is opening up the tablet world to buyers in a different bracket.

The notion of a new kid in town; however, was not well received by some Apple shareholders who led the company lower during trading today.

The same can be said for Dell (DELL), which slipped narrowly after Ticonderoga Securities’ Brian White, recommended investors shed shares of the PC maker on the basis of waning market demand from both the corporate and public sectors. White added that while Dell is hardly gobbling up tablet market share, the new Kindle Fire could be a drain on sales.

Amazon (AMZN), for all the fear it was instilling in potential competitors, edged lower for the session.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CDI CDI Corporation 8.10 0.15 1.89 17,957
RMBS Rambus Inc. 14.14 0.38 2.76 411,851
AAPL Apple Inc. 111.96 0.93 0.83 11,351,617
AMZN Amazon.com Inc. 768.20 -2.23 -0.29 1,419,327
NFLX Netflix Inc. 123.99 -1.40 -1.12 4,137,209
MU Micron Technology Inc. 20.52 0.08 0.41 15,919,390

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