by Dan December 6, 2011 11:57 am • Commentary

Amazon has been shipping their new Kindle Fire tablet for a few weeks now, and aside from getting very good reviews, some are speculating that they will sell a shit-ton of them this quarter.  I for one am helping them in this endeavor. Yesterday I ordered 5 of them for the price of 2 iPads as Holiday gifts for family members (recently I spent some time messing around with a friend’s Fire and frankly was blown away with the product, specifically at a $200 price point vs. my existing iPad1 that I paid $500 for.)

LETS DO THE MATH: 5 Kindle Fires = 2 iPads  Hmmmm.

As holiday sales will continue to be a focus for those trying to gauge consumer demand, and the very health of the consumer, I think in some ways the “tablet wars” this quarter could be emblematic of the sort of decisions that consumer tech buyers start to make in the post Steve Jobs era. Here’s how I think this could play out:

For instance Jobs sold the iPad to Apple hungry consumers as a “magical and revolutionary” device back in April 2010, and by all accounts it has been an all out hit since its inception garnering ~70% market share at its recent peak.  But, I find it hard to believe with the lack of Jobs’ marketing prowess that evolutionary products like the iPad2 will be able to maintain their dominance with plenty of very good lower priced competitors coming on line.

This opinion of mine has less to do with the opportunity for AMZN, (as I believe they will continue to sell a lot Kindles/Fires, their profitability on the product, or lack there of is not what I am getting at), but the Fire is the first product that could actually stop AAPL in their tracks a bit, largely to do with AMZN’s ability to subsidize the cost.   This is AAPL’s challenge going forward in the soon to be very crowded Tablet and Smart-Phone segments.  Now many AAPL snobs/fanbois (I have been accused of being both!) will argue that the 2 products are in different categories not only because of the difference in size (Fire 7inch and iPad 10inch), lack of camera etc, but because of all the stuff that Steve Jobs got you to care about and pay a premium for, design and metal.  I will argue as Jobs’ legacy on the product front becomes less evident over time that the company will be less likely to innovate and thus fall back towards the commoditized hell that most of their OEM competitors face.


I have probably 20 AAPL devices in my home, and I just bought my first Android based product (after passing on the new iPhone 4S) and will be preaching the Gospel a bit (having nothing to do with Android to be very honest), but more to do with a viable cheaper solid alternative to the iPad.  Back in April 2010 when the iPad was introduced, I obviously bought it but have not used it more than 100 times and it is now relegated as my Kids’ fancy movie viewing machine.  At $500 the iPad does not interest me but I have gladly shelled out $1700 for a MacBookAir, because it is a great and useful product.

Make no mistake about it, I believe the tablet category is here to stay and will likely evolve to a very useful piece of hardware in many facets of our lives, I just don’t believe it will be at a price point starting at $500 for most people.  I also don’t believe the Tablet will be a laptop replacement anytime soon so a $500 tablet in addition to a slick $1700 Macbook Air, just doesn’t make sense for most.

So I guess to sum up, I think the Kindle Fire is the first product in many years that may make AAPL rethink an existing product strategy and price point.

Do I currently think there is anything to do in AAPL at the moment because of the what I just laid out?? NO, we will have to wait and see when APPL and AMZN report their Q4 tablet units to get a good read on this, but in the meantime  sentiment regarding this competition may certainly move the stocks around on a day to day basis.


Back on Nov16th when the stock was about $388 I bought the Dec 375/360/345 Put Fly for 1.70.    On Nov 23rd when the stock was ~$369 I sold half the position for 2.40 (.70 profit).  Now the position is only worth about 1.00 with the stock at ~$391 and 8 trading days till expiration.   I am gonna hold on at this point, but do think the stock looks a bit toppy near term.

Technically the chart is banging up against the top end of the trend channel after an almost 8 day 8% rally.

5 month AAPL Chart from Bloomberg

With my new thesis on the tablet space war, I will be looking to take advantage when the time is right. Stay tuned.