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The iPad Vs. Kindle Fire: Comparing Apples to Oranges

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There's more than enough room in the tablet space for Amazon's Kindle Fire and Apple's iPad because each serves a very different market.

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Before we get into today's hot topic -- the supposed war between the Apple (AAPL) iPad and Amazon's (AMZN) newly released Kindle Fire -- I wanted to provide a quick update to my short play on Activision (ATVI) (see "Call of Duty" Blows Up, But Activision Still a Risky Bet).

As I mentioned on the Buzz & Banter this morning, Activision traded down to the ~$12.20 level on news that Vivendi was dumping a 35 million share block on the market. While I didn't catch the absolute low, I took advantage of the artificial supply and demand imbalance to lock in a solid gain on my puts. I will look to reload on the short side after the market digests that block.

Remember folks, in a market like this, it's often better to be lucky than good!

So let's get down to the fun stuff.

Amazon's Kindle Fire, which runs a heavily modified version of Google's (GOOG) Android operating system, appears to be the only non-iPad tablet ready to move massive volumes. Amazon's status as the world's largest online retailer gives it unique advantages in marketing and pricing, as well as ownership of a media-distribution platform. Not even a merged Google and Motorola Mobility (MMI) will have such powers. (See 3 Reasons Amazon Could Make the Only Android Tablet That Matters)

In business, wars with clear winners and losers make for great headlines.

But in the case of the iPad and Kindle Fire, there is more than enough room for both devices to win, since they serve different markets.

I'm not performing rocket science here, folks.

The iPad, which retails for $499 and up, is a much higher-end product with a larger screen and significantly better multimedia capabilities. It appeals to consumers who are willing to pay up for design and ease of use, as well as the most loyal customers on Earth -- Apple nuts.

The Kindle Fire, of course, costs just $199 and has a relatively tiny 7-inch screen. The prime customer base here consists of consumers already in love with the Kindle ecosystem, people in the market for a compact Android tablet, and cheapskates.

For reading books, Netflix (NFLX) movie-viewing, and web browsing, the Kindle Fire surely gets the job done. But if you want to do all that, and view digital magazines on a big, razor-sharp screen, edit videos, and access a truly massive family of apps, the iPad rules.

Odds are that the Kindle Fire's effect on iPad sales will be minimal. The iPad's a Porsche and the Kindle Tablet is a Honda Civic. They both get you from point A to point B, but at vastly different prices and with different bells and whistles.

This is important to remember because an iPad disappointment isn't out of the question. In the September quarter, sales rose a whopping 166% year-over-year to 11.1 million units, but were still below expectations.

Also, our neighbors over at BusinessInsider recently quoted a Goldman Sachs research note saying the following:

...the new Hon Hai forecast implies more limited upside to iPad units, which is disappointing for a December quarter. While improving holiday demand into late November could certainly push the momentum in the other direction, we believe it is prudent to assume the iPad is facing some near-term demand challenges. We believe there are several factors driving this pressure, but we also believe these issues are temporary and will likely be solved by three key factors in early 2012: (1) the continued adoption of iCloud, (2) the launch of Siri on the iPad, and (3) the addition of lower price points.

I'm still bullish on Apple, primarily because of what I perceive to be skyrocketing iPhone 4S sales, but I fully acknowledge that the iPad could hit a rough patch, despite its complete and utter dominance of the tablet market.

Now it will be tempting to paint and iPad weakness as Kindle Fire strength, and vice versa. But resist simplicity -- we're comparing apples and oranges here, and there's plenty of room for both sides to win.

(Also read The Siri Effect: Is Apple's Latest Feature Positive or Negative for Google Stock? and Apple's Market Share Falls as Android Rockets Past 50%.)

Twitter: @MichaelComeau

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