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Amazon Takes $170 Million Writedown on Weak Fire Phone Sales


Ina Fried
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

Amazon said in a conference call following the release of a disappointing third-quarter financial report that it would take a $170 million charge “primarily related to Fire phone inventory valuation and supplier commitment costs.” Translation: The Fire phone has been a disappointment.

The company’s first phone came on the market at $199 but the price was quickly cut to 99 cents with a two-year subscription with AT&T, the exclusive carrier for the phone.

The reaction of John Legere, CEO of AT&T competitor T-Mobile, says it all.

The phone included some unique features such as an image recognition technology called Firefly but entered the market right before the introduction of Apple’s hugely popular new line of iPhones. Reviewers on Amazon have given it a rating of 2.1 out of 5 stars, by far the worst rating among the site’s Top 10 list of best-selling contract phones.

On a separate conference call with reporters, CFO Tom Szkutak called the Fire phone “a good device in a very competitive market” which sounded a lot less positive than CEO Jeff Bezos’s comments in June when he told Re/code, “Our job is to build the greatest device we know how to build.”

Still, Bezos is known for taking a long-term view on new businesses, and the Fire phone shouldn’t be any exception. The phone comes with a free one-year subscription to Amazon Prime, the company’s popular two-day shipping program that also includes access to a large digital library of TV shows, movies and music. The Prime program is becoming increasingly crucial to Amazon’s growth, as several studies have found that Prime customers spend around twice as much in a year as non-Prime members do.

While Amazon included some unique features and the year-long Prime subscription, the phone debuted without an especially low price for either the device or monthly service–it uses AT&T’s standard plans.

In addition to improving the hardware, Amazon could choose with a future Fire phone to also be more disruptive with the business model, provided it believes it can make money on the media and software it sells. And of course, limiting sales to AT&T also limited sales of the device, though the poor sales this time could limit future interest from other carriers.

Ina Fried contributed to this report.

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