What’s Behind the Drop in Kindle Fire Shipments?

Once hailed as the first true rival to the iPad, Amazon’s Kindle Fire no longer seems to be much of a threat to Apple’s tablet. The Fire had no impact on Apple’s March-quarter iPad sales. Indeed, during the company’s second-quarter earnings call, CFO Peter Oppenheimer said Apple is selling new iPads “as fast as we can make them.” And, according to the latest data from IDC, global Fire shipments dropped from 4.8 million units in the fourth quarter of 2011 to less than 750,000 units last quarter.

From 16.8 percent to about 4 percent worldwide market share in a single quarter. That is a swift and ugly decline. What’s causing it?

Kindle Fire demand could be dropping off as customers postpone their purchases in anticipation of a new version of the device. Or it could be declining because the Fire was a really well-executed holiday play whose novelty has since worn off.

Or it could be that the iPad 2, which Apple continues to sell alongside the new iPad at a lower price, is winning over some of the same consumers that Amazon has been targeting with the Fire.

Or, because the number of units shipped isn’t the same as units sold, the dropoff in shipments in the Fire’s latest quarter could primarily be the result of a large inventory buildup in the product’s first months on the market.

At $399, the iPad 2 is still twice the price of the Fire. But it’s also $100 cheaper than the new iPad, and comes accompanied by the same vast app and content ecosystem, iCloud, Facetime and other slick features. And that may be discount enough to command the attention of budget-conscious consumers. Indeed, during Apple’s last earnings call, CEO Tim Cook said the iPad 2’s new lower price point was unlocking demand among price-sensitive customers.

If that’s the case, perhaps it’s unlocking demand among potential Kindle Fire buyers as well. It’s worth noting that during the same period, IDC claims that while the Fire’s share of the market fell to 4 percent from nearly 17 percent, the iPad’s share rose to 68 percent from 54.7 percent.

Could there be a correlation there?

Barclays analyst Ben Reitzes thinks there might be.

“The lower priced iPad 2 has seemed to offset some of the original threat of the lower priced Fire,” he says. “Many consumers seem willing to pay $399 for a feature packed tablet with a strong and developed ecosystem rather than $199 for a relatively underpowered tablet.”

Certainly plausible. Anecdotally, I know a few folks who had planned to buy the Fire, only to balk later and cough up the extra money for an iPad 2. Perhaps there are lots more of them out there. Your thoughts?