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Amazon profits dive after heavy Kindle investment

Amazon boss Jeff Bezos unveils the Kindle Fire last month

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Profits at the online retailer Amazon have dropped 73% after the company invested heavily in the Kindle tablet computer.

The company, the world's largest online internet retailer, said third quarter net income was $63m (£40m, 45m euros).

During the period it launched the Kindle "Fire" model, which runs apps and streams films and other non-text content.

The results left Amazon shares down 12% in after hours trading.

The company said that sales had grown by 44% and that last month, on 28 September, it had its "biggest order day ever for Kindle, even bigger than previous holiday peak days".
It now offers four Kindle devices, including a 3G model.

Lower margins
Jeff Bezos, the founder and chief executive of Amazon, said: "In the three weeks since launch, orders for electronic ink Kindles are double the previous launch. And based on what we're seeing with Kindle Fire pre-orders, we're increasing capacity and building millions more than we'd already planned."

Amazon also forecast lower-than-expected sales for the next quarter, which includes the crucial Christmas period, and said it could even see an operating loss as it continues to invest in the Kindle Fire.

Amazon's profit margins have generally been lower than other technology firms, a situation that analysts say is now catching up with them.

"Investors have always given Amazon a hallpass to invest and it looks like they may have had their patience exhausted," Lawrence Haverty from Gamco Investors told the BBC.

"Its operating margin is only 4%. Most technology companies need an operating margin of over 20% so I think investors are asking themselves if the business will ever really be profitable," he said.


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