Amazon likely to lose $50 for every Kindle Fire sold

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Amazon is likely to lose around $50 for every Kindle Fire tablet that the company sells. Piper Jaffray’s Gene Muster further believes that the Fire isn’t a true competitor to Apple’s iPad, but it is more competitive than the financial services researcher initially thought.

Muster said as much in a note to investors just after Amazon’s announcement earlier today, according to CNN Money.

The analyst believes the 7-inch screen is one of the tablet’s cons. Additionally he lists the 8GB of local storage and lack of cameras and a 3G option on the minus side. In comparison, the iPad is available with 16GB, 32GB or 64GB of built-in storage.

Where the Kindle Fire will shine, however, is with its superior content delivery. Amazon will leverage their assets to provide movies, music, books and storage on the Cloud in addition to traditional web browsing and gaming. This is where the company is expected to make money on the tablet. In contrast, Apple makes about a 30 percent gross margin on iPad hardware upfront.

Muster thinks Apple’s tablet market share could fall to as low as 60% next year with Android’s share climbing to around 30 percent, riding the coattails of the Kindle Fire and other yet-to-be-released tablets.

Amazon introduced the Kindle Fire tablet earlier today at $199, significantly undercutting Apple’s iPad 2 which has a starting price of $499. Fire pre-orders are being taken now with units shipping on November 15.

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