Amazon Enters Smartphone Market with Fire Phone - Analyst Blog

Rumors of Amazon's intentions to launch a smartphone have finally come true. The e-Commerce giant Amazon.com Inc. AMZN introduced the long-awaited smartphone — Fire Phone — expected to be available from Jul 25. Following the news, Amazon's share price increased 2.69% in after-hours trading.

This is the latest in a series of initiatives by the online retailer/tech company to enter the hardware market. Powered by Google's (GOOGL) Android OS, Fire Phone will come with a 4.7 inch, 720p display, higher screen resolution, a Qualcomm processor, Adreno 330 graphics and 2GB memory. It has a 13-megapixel camera featuring optical image stabilization which stabilizes the recorded image to give superior picture quality.

Other distinct features include unlimited free storage space to store photos on remote computers through Amazon's cloud-computing software, leaving enough room for new apps and music. The smartphone's Firefly feature enables the camera to identify things such as movies, books, games, CDs and more which the user can buy through Amazon later. Additionally, the device has four front facing cameras, enabling users to view 3D images without special glasses.

Fire Phone is designed to work with Amazon's other media services such as movie rentals, TV downloads, e-book borrowing and Prime video and music streaming services. To attract more customers, the phone comes with one year of free Amazon's $99 Prime program membership, which offers free two-day shipping and online video streaming.

The phone will cost $199 with a two-year contract and be available exclusively at the leading wireless provider, AT&T, Inc. T, which already provides wireless service for Kindle tablets and e-readers.

Although Amazon has been successfully entering different markets, it might have to struggle to establish itself in the smartphone market which already has numerous players. For the last few years, the high-end smartphone market has been dominated by Apple AAPL and Samsung, which together constituted 46.6% market share in 2013, per the research firm Gartner.  Amazon's late entry could make growth difficult.

Going by Amazon's past performance, the company seemed to have no problem selling its hardware even at a loss to attract users who ultimately buy products/content from its website. This can be seen from how the low-priced Kindle Fire managed to carve out its niche in the tablet market. Therefore, industry insiders had expected the Fire phone to be far cheaper than iPhones or Galaxy devices. Now, the high priced Fire Phone might not be able to attract mass attention.

However, Amazon will have a competitive advantage because of the special features, such as 3D image viewing, Firefly image-recognition button and cloud photo storage. Also, the device provides a more compact software-hardware amalgamation, thus offering an improved user experience.

We believe the smartphone could help Amazon to expand its current line-up of devices and further boost the sales of digital books, music and movies.

Amazon currently has a Zacks Rank #3 (Hold).