Bigger Kindle Fire Could Heat Up Tablet Competition

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- After the runaway success of the Kindle Fire, Amazon(AMZN) may be now ready for a bigger tablet to take a bite out of Apple's(AAPL) tablet market share.

According to Taiwan-based China Times, Amazon's suppliers have hinted at a 10-inch tablet from Foxconn that may be released to market by the end of the second quarter. Additionally, Amazon will be selectively approving the supply parts to be used in this second-generation tablet, as opposed to earlier when Quanta used to take care of the complete process itself.

See our complete analysis of Amazon here.

Amazon looking to reduce Kindle's cost

The Kindle Fire has had a hugely negative impact on Amazon's earnings, which fell 57% in the recently concluded fourth-quarter 2011, and the company warned that it may post an operating loss in the current quarter as well.

We believe Amazon is trying to reduce the manufacturing costs by personally looking into a part of the supply-chain process instead of outsourcing it completely. Since Amazon believes in coming out with cheaper tablets as a way of competing with the tablet stalwart such as Apple, this will help it reduce the bill of materials (BOM) cost while not compromising a lot on its tablet capabilities.

Numerous reports have made the rounds, conjecturing on the kind of plans Amazon has for the tablet market it has entered with much gusto. Pacific Crest analyst Chad Bartley believes that Amazon plans to release an updated 7-inch tablet and a new 9-inch one by mid-2012. BGR had reported last May that Amazon was working on a 10-inch tablet, in addition to the 7-inch one that was launched later that year.

Later reports seemed to suggest that an 8.9 inch tablet may be launched first. While the reports differed on the finer details, it seems pretty clear that Amazon is prepping up for the launch of a bigger tablet this year.

What will Apple's answer be?

While we believe that this tablet will also be priced more cheaply than the iPad, it may not be as cheap as the original Kindle Fire that undercut the iPad by more than a half. The bigger tablet will be costlier to produce and Amazon may not be ready to take on a huge margin hit, considering its already razor-thin margins.