Kindle Challenge to iPad Narrows Amazon Margins

Amazon’s profit margins, already at a five-year low last quarter, are set to narrow next year as the world’s largest online retailer sells its new tablet computer for half the price of the iPad.

The Kindle Fire will go on sale next month for as little as $199, compared with $499 for the cheapest tablet from Apple Inc. (AAPL) The lower price will help Amazon sell 4.5 million Kindle Fires in the fourth quarter, according to Barclays, topping the 3.3 million units Apple reported for iPad’s debut quarter. It also means Seattle-based Amazon loses about $10 on each tablet, according to IHS. “It is possible that in 2012 you’ll have a quarter with negative operating margins,” said Ben Schachter, an analyst at Macquarie Capital in New York. “That typically is a disaster scenario. It’s phenomenal to have this revenue growth, but at some point you want to see them make money on it.” Chief Executive Officer Jeff Bezos is counting on sales of music, books, movies and merchandise on the tablet to make up for money lost on the device.