Paulo Santos (who is short AMZN) has a great post on Seeking Alpha about the nasty secret hidden in Amazon's otherwise-strong Q1 earnings. The reason Amazon's razor-thin margins look just the teensiest bit better is that sales of the break-even Kindle have fallen off a cliff. Is e-ink doomed? We sure hope not.
Amazon never, ever talks about how many Kindles it sells. That's what lots of tech companies do when their devices aren't selling. So Santos did the sensible thing and looked for clues lower down the supply chain.
Sure enough, E Ink Holdings, the world's biggest e-ink display manufacturer - with Amazon as its best customer - just reported its first quarterly loss in more than two years. Here's chairman Scott Liu, quoted by the Taipei Times:
"Our major customer was too optimistic about its sales in the fourth quarter of last year and ordered too much from us. That made the customer order almost nothing from us in the first quarter."
What went wrong? Santos says the Kindle Fire cannibalized the e-ink Kindle sales. That's possible, but it's not proven. The timing is telling, though. Amazon has had to order few if any new e-ink screens since the Fire was introduced. Two great new e-ink Kindles also were introduced at the same time. That doesn't smell good for the Kindle line.
Santos put the pieces together and calculated that Amazon averaged 7 million e-ink Kindles per quarter. According to his model, sales must have fallen by 75% or more if Amazon needed no new screens last quarter.
Santos discloses that he is short AMZN, and he wants to portray this news as the "imminent failure of Amazon.com's strategy to dominate the e-reader space." It sure doesn't look rosy. The Kindle Fire may have killed the Kindle, and now Kindle Fire sales have tanked, too.
But the failure of the Kindle would be a shame. The basic e-ink Kindle is a great device, and there's a need for it. It's light, it's inexpensive, it lasts for a month on one charge (according to my own extensive field tests), you can read it outside (unlike a smudgy glass tablet), and you don't have to worry about it, like you do an iPad, one obvious competitor to the Amazon way of reading.
It would be sad if fascination with sexy, heavy, expensive full-color iPads (and other tablets that belong in parentheses) drove out the e-ink reader. Its simplicity is its killer feature. Maybe Microsoft's new partnership with Barnes & Noble will help turn things around for the e-ink Nook, but that just doesn't look like the way the trend is going.
Then again, Amazon's walled garden of e-books isn't ideal, anyway. What we really need is the best $100, third-party, DRM-free, hackable e-ink reader imaginable.