Why Amazon’s competition should worry about its new smartphone

Market Realist

A new Amazon smartphone could shake up the mobile market (Part 2 of 5)

(Continued from Part 1)

Amazon enters the smartphone market to challenge Samsung and Apple

In the previous part of this series, we discussed how Amazon (AMZN) is trying to enter into new markets to revive its revenue growth. It could launch a new smartphone during the June 18 event, which will pit it against the smartphone market leaders Samsung (SSNLF) and Apple (AAPL). As the chart below shows, Samsung is the leader in the global smartphone market, with a share of 31% as of 2013, followed by Apple at 15%.

Amazon’s e-commerce strategy has been to sell products at a lower price point

The Market Vectors Retail ETF (RTH), PowerShares Nasdaq Internet Portfolio (PNQI) and First Trust Dow Jones Internet Index (FDN) are some of the ETFs with high exposure to Amazon. Amazon’s strategy has always been to offer hardware products at a lower price so as to acquire customers and then sell services to those customers. Amazon’s main business line is still the e-commerce business, and even there, it sells its products at a discount to competitors. This is evident from Amazon’s low operating margins of 2.5% as of Q1 2014, as the company reported.

Historically, Amazon has entered new markets at lower price points

In April this year, Amazon announced the launch of Kindle Fire TV, a set-top box to compete with Apple TV and Google (GOOG) Chromecast devices at an attractive price of $99. Similar to Kindle Fire TV, Amazon could launch the new smartphone at a lower price point. Despite the lower price point, Amazon is known to provide some attractive features in its products. For example, Kindle Fire TV is a video streaming product from Amazon to stream videos from content providers such as Netflix (NFLX), YouTube, and Hulu. It also comes with access to Amazon’s own Instant Video service and access to music service from Amazon MP3, Pandora (P), and TuneIn. The device also has a voice search feature and comes with 2 GB of memory access, which is four times the memory provided by Apple TV.

Continue to Part 3

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