Amazon May Push Into Tablet PCs

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Amazon.com (NASDAQ: AMZN) was ambushed by Apple Inc (NASDAQ: AAPL) when Jobs & Co. launched the iPad. It was close enough in price to the Amazon Kindle and had more features. Amazon eventually dropped prices low enough to give it a chance to hold market share, but that means it margins on the unit dropped as well. It will have to make those margins up on sales of e-books, which is hardly a sure thing.

Amazon may be about to strike back. It has begun to hire an army of hardware engineers. The New York Times caught on to this. The skunk works project in dubbed Lab 126. Its goals appear to be to create larger and more powerful Kindles with color screens.

Amazon may be wise to go “up-market”. The margins there are certainly higher. Dell (NASDAQ: DELL) has entered the sector with its Streak product. There are rumors that both Hewlett-Packard (NYSE: HPQ) and Microsoft (NASDAQ: MSFT) will soon enter the business.

Amazon will almost certainly use the Android OS for any PC-like product. The operating system has passed that used by the iPhone and iPad by most industry measures. That will give Amazon tablet users a chance to have access to the growing number of apps that run on Android.

Amazon is not really a hardware company, or so many analysts say. But that has changed immeasurably since the introduction of the Kindle and the opening of the company’s e-book market place. The company’s core e-commerce business which handles the sales of everything from jewelry to household goods may be receding as the engine for the company’s growth

A move to hardware as a primary means of revenue production has its dangers. Hardware typically has low margins. Amazon is the leader in e-commerce which gives it cost leverage and an unpredented inventory of goods. Amazon will be late to the tablet PC market–a sector often plagued by glitches and supply change problems.

But, Amazon clearly senses that the market will moves away from it as a company if it cannot compete in the tablet market, which seems to be the next big thing in hardware.

Douglas A. McIntyre