Is the Kindle Fire a Dud?

The reviews are starting to pour in, and they aren't screaming “iPad killer.” Not that anyone expected a $200 tablet to entirely defeat Apple's AAPL much-loved tablet. But this is an Amazon AMZN product, one with insurmountable hype, an insane amount of buzz, and a ridiculously high number of pre-orders. But while Amazon has announced that the Kindle Fire is shipping one day early (which can't be good news for the Nook Tablet), there are a number of negative reviews casting a shadow on the tablet's long-awaited release. As I write this, the top story on Business Insider is a reiteration of a negative review from the New York Times. TechCrunch has a story this morning entitled, “Forget The Negative Reviews, Amazon Is Shipping The Kindle Fire A Day Early,” pointing to reviews from Engadget (whose reviewer is clearly disappointed) and Wired (whose reviewer is downright frustrated). Those who pre-ordered the Kindle Fire might be a little worried right now. But negative reviews, no matter how plentiful, may not be enough to keep the device from winning over the low-cost market Apple can't reach. When it comes to entertainment, humans are an interesting species. For proof, you don't need to look any further than Pirates of the Caribbean: On Stranger Tides. This film had a generic, studio-constructed trailer; a lackluster marketing campaign; and it followed the release of two Pirates sequels that disappointed most moviegoers. Critically, On Stranger Tides received a reviewer average of just 33%. Despite all of this, the film grossed more than $240 million domestically (and another $800 million worldwide). Granted, the Kindle Fire doesn't star Johnny Depp. But it can play Johnny Depp movies. More importantly, the Kindle Fire is the sequel to a long line of beloved e-readers. That, combined with the Amazon name and a low price point, could go a long way in helping this tablet sell a few million units. Yes, there are times when negative reviews can have an impact. More often than not, however, they tend to reinforce the opinion consumers already have about a product. In the case of the Kindle Fire, many tech enthusiasts will buy it no matter what reviewers say, knowing that the reviews may be wrong (contrary to popular belief, critics aren't always right) or that they may simply have different tastes and desires than the average Kindle Fire buyer. An even greater number of consumers will ignore the reviews and go straight to the nearest retailer kiosk to see if this tablet is right for them. These are the kinds of consumers who Apple loves, and they are the ones who will ultimately decide whether or not the Kindle Fire a success. If (after touching the Kindle Fire for the first time) consumers start to agree with the reviews, that is when Amazon should begin to worry. Until then, the Kindle Fire is no less a potential iPad competitor than it was last week. ACTION ITEMS: Bullish: If you expect the Kindle Fire to be a success, consider these trades:

• Content providers like Disney DIS and Warner Bros. TWX, along with major app developers like Electronic Arts ERTS, could soon have a new distribution venue beyond the iPad.
• Amazon isn't likely to soar overnight on high Kindle Fire sales, but a successful tablet will help the company's bottom line, which could in turn increase its EPS.
• As with the sale of any tablet, suppliers like Texas Instruments TXN stand to benefit greatly from Amazon's success.

Bearish: Those who are fearful of Amazon's future in the tablet market should consider these alternate trades:

• If consumers don't buy into the Kindle Fire, they'll still be searching for a low-cost tablet. That's where Barnes & Noble BKS comes in.
• Apple isn't likely to release a low-cost tablet, but that doesn't mean it won't slowly convince cheap consumers to pay $500 for an iPad 3.

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