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Will Amazon Get Burned by Its New Fire Phone?

NEW YORK (TheStreet) -- Amazon (AMZN - Get Report) is launching its first mobile phone featuring a unique 3-D interface and the ability to automatically recognize objects and purchase them directly from Amazon's Web store. It will be competiting against the more established phones and operating systems of Apple (AAPL - Get Report), Google (GOOG) and Samsung (SSNLF).

When the company announced the phone last week, Amazon shares climbed 2.7% to $334.38 only to fall, after peaking at $338.13 early on Thursday. Amazon closed Wednesday at $327.44, down nearly 18% for the year to date but up nearly 20% for the past 52 weeks.

Should you buy Amazon shares? For the company itself, yes; for the Fire, maybe not.

Consider, Amazon's new Fire phone is intended to be a direct competitor to Apple's iPhone and Samsung's Galaxy S5 with a price of $649 without a contract or $199 with an AT&T (T) contract.

Sweetening the pot, Amazon is also offering Fire purchasers 12 months of free membership to the Amazon Prime two-day delivery and content streaming service. This fits in nicely with the phone's ability to recognize real-world objects and purchase them from the store with just a few clicks.

Amazon's e-reader experience gives the company one small advantage because it has already had a significant amount of time to develop a streamlined system for delivering e-books and other media to customer devices via its Kindle platform. The new Fire smartphone must be able to build on this experience for the company to succeed.

The smartphone market is dominated by industry heavyweights Samsung and Apple, which in the last decade have pushed previous leaders Motorola and Nokia (NOK) to the side. Samsung is a household name in Asian markets in particular and is unlikely to yield much of its share to Amazon, which doesn't have much of a footprint in the region.

However, in western markets Amazon may be able to tilt some smartphone owners' loyalty from the iPhone and Google's Android offerings based on customers' previous good experience of Amazon's web store. But the app ecosystem is definitely Amazon Fire's weakest link. With just 200,000 apps available, it pales in comparison to the more than a million apps that both Google Play and Apple each offer.

Some may see Amazon's offering as simply a glorified shopping machine. Even CEO Jeff Bezos portrayed the product, during its unveiling, as a gateway to buying from Amazon's Web site. It's a compelling feature for those who already do most of their shopping from Amazon, particularly with the year's subscription to Prime thrown in.

The Fire only being available with AT&T is another disadvantage considering you can buy an iPhone or  Android phone at any carrier.

How are Apple and Samsung likely to respond to Amazon's smartphone offering? The Fire has a superior screen size to Apple's current range of iPhones but is in a firm second place versus Samsung's S5. Fire's slight screen size advantage is likely to be short-lived, however, considering the reports the iPhone 6 is likely to have a bigger screen.

Also, the Fire comes with Qualcomm's (QCOM) Snapdragon 800 CPU, a processor released in 2013. With Apple likely to release its new A8 chip with its latest iPhone, it will have another significant advantage over Amazon as well as its already superior selection of apps.

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