Buyers not keen on eye-tracking cameras and poor reviews mean that online retailer is left with huge overhang of unsold phones
Amazon is writing off $170m on unsold inventory of its Fire Phone, the smartphone it launched in July but which has seen disappointing sales.
The announcement comes after Guardian estimates that the phones had sold only around 35,000 units more than a month after its launch in the US. Successful handsets typically sell more than a million units in their first month.
The Fire Phone incorporates a number of new technologies such as eye-tracking cameras but has seen poor reviews both from professionals and buyers: it has an average rating of 2.1 out of 5 stars from 3,100 reviewson the site, with buyers complaining they cannot get apps they had on previous Android phones and that they can’t use Google Maps, YouTube or Google Music because it runs a “forked” version of Google’s Android.
Amazon unveiled the Fire Phone in June, but observers noted that its off-contract price of around $600 was about the same as a top-end iPhone or Samsung device, but with fewer reasons to buy it. Like the priciest iPhone, it initially cost $200 with a contract from AT&T – the only US network that sold it – but the upfront cost was slashed at the start of September to just 99 cents.
The writedown is not mentioned in Amazon’s formal third-quarter earnings statement released on Thursday evening, in which it recorded a $544m operating loss on revenues of $20.6bn.
Instead, it was only mentioned on the subsequent earnings call with analysts, when chief financial officer Tom Szkutak noted that the “consolidated segment operating loss includes charges of approximately $170m, primarily related to the Fire phone inventory evaluation and supplier commitment cost.” Szkutak said that at the end of September “we had approximately $83m worth of [Fire Phone] inventory on hand”. He also said that $25m of the writedown was outside the US.
Skzutak didn’t say what value Amazon now attaches to each phone, though a $200 cut from its $600 upfront cost – as happened at AT&T – would imply an expected $400 revenue from each.
That suggests Amazon has about a minimum of 207,000 unsold phones, now worth a total of $83m, in its warehouses. If Amazon’s expected revenue from each phone is lower – such as $240, which would be a typical wholesale price for a $600 device – then it could have up to 346,000 unsold phones.
At a $200-per-phone writedown, the “international” writedown of $25m suggests 125,000 as-yet unsold phones held by carriers and Amazon outside the US.
The remaining $62m of the writedown would probably have gone to AT&T to fund the $200 price cut, suggesting that the carrier had 310,000 unsold Fire Phones.
Supplier, no buyer
The “supplier commitment cost” is money that Amazon had promised to pay the maker of the handset – which has not been publicly stated, although some believe that it could be Taiwan’s HTC, which was previously a contract handset manufacturer for Windows Mobile devices before branching into Android phones. Update: the manufacturer is not HTC, according to Amir Efrati, who has written on the topic for The Information.
But with so many Fire Phone handsets apparently unsold, it is unlikely that there will be further orders before Amazon clears its inventory. With the Christmas buying season approaching, that may be possible – but it will also be competing against better-known phones from a variety of manufacturers.
Inventory writedowns can be calamitous for both the vendor and the manufacturer, unless they can afford the lost revenues as prices are slashed and orders cut back. BlackBerry took a $485m inventory charge on unsold PlayBook tablets in December 2011, and a further $934m charge on unsold Z10 handsets in September 2013 – with the former propelling it downwards into losses, and the latter sealing the fate of its then chief executive Thorsten Heins.