AMZN: ‘Fire’ To Crimp Margins; Better A Cannibal Than Be Eaten

Responses are trickling in to Amazon.com’s (AMZN) announcement this morning that it will offer a touch-based version of its “Kindle” e-reader, a lower-priced version of the traditional model, and a new tablet computer called “Kindle Fire,” based on Google’s (GOOG) “Android” operating system.

Citigroup’s Mark Mahaney, who has a Buy rating on Amazon shares, and a $280 price target, calls it the “Bonfire of the Kindles.”

The prices — from $79 to $199 — are “very aggressive” and “very attractive,” he writes. He found the breadth of features and the quality of the designs surprising.

It’s going to hit profit, he writes:

We had assumed that AMZN would be aggressive with pricing, but not THIS aggressive. Assuming the products hold up, we believe there should be a path here to multi-million unit sales in the near- to medium-term for both the new eReaders and the Fire. But we would expect this to come at the expense of margins. Unit economics will require a detailed BOM (Bill Of Materials) analysis, which we won��t be able to do until the products ship. Our first pass is that 2012 EPS will likely be only modestly impacted, with potentially greater than expected Revenue mostly offset by lower than expected margins. If these products succeed, the positive EPS impact is probably more likely in 2013.

Gene Munster with Piper Jaffray, who covers, Apple (AAPL), writes that the Fire is “more competitive” than he had presumed compared to Apple’s iPad, even though the device is “not a true iPad competitor.”

The small storage — 8 gigabytes — the lack of a camera, and the lack of a 3G option are drawbacks of the Fire, but the Web browsing and movie watching and music playing were more than he was expecti! ng.

< p>Munster is not revising his estimate Apple will ship 50 million iPads next year, however, as he was expecting some Android tablets to succeed in taking market share from the iPad over time.

Amazon shares are up $10.02, or almost 5%, at $234.25, while Apple shares are up $1.94, or half a percent, at $401.20.

Barnes & Noble (BKS) stock, meanwhile, has seen its loss today go deeper since the announcement. Shares are currently down$1.64, or 12.4%, at $11.57.

Update: JP Morgan’s Doug Anmuth, who rates Amazon shares Overweight, this afternoon wrote that the Fire will sell well over the holidays, perhaps by as much as 4 million to 5 million units. The device will at best be neutral to profits, and likely a loss-maker for the company, he writes.

Still “to truly compete more with the iPad we believe Amazon will need to offer a 10�� version with additional features and functionality.”

The combined impact of the new Kindles and the tablet is that “Amazon is both recognizing the market opportunity for single-purpose devices at the low end and also defining a new price point for low-mid level tablets,” he writes.

“It��s better for Amazon to cannibalize itself than have it done anymore by Apple,” he adds.