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Amazon.com, Inc. (AMZN - Analyst Report) unveiled a high-definition (HD) 7-inch version of Kindle Fire that will be available from November-end. The latest model will directly compete against Apple Inc.’s (AAPL - Analyst Report) iPad, which is presently the dominant player in the tablet segment.

Amazon is waging a price war as it has also reduced the price of the entry-level model of Kindle Fire from $199.0 to $159.0. Now, Amazon has taken the competition a notch higher by launching the high-definition (HD) version of Kindle Fire, which is attractively priced at between $199.0 and $599.0. The HD version is 4G enabled and supports 32GB memory.

The new model will have the X-Ray feature, which will provide useful insight about books or movies to the viewers. Another feature is an on-screen tap, which will provide details about the movie to viewers. It also includes an upgraded version of Immersion Reading that will allow the user to hear narration by a popular actor while reading a book.

In addition, Amazon’s new data package offering makes the deal more attractive. Users have to spend just $49.99 annually compared to iPad’s $180.0 per year.

Amazon is the leading Internet retailer and its tablet strategy is centered on ensuring that revenue from its digital goods continues to grow strongly. Amazon’s tablets are therefore designed to offer every convenience for the consumption of movies, ebooks and songs. The first version was simply an improvement over its ereader, but subsequent versions may be expected to get better and better to encourage users to get into the Amazon eco-system. 

Amazon clearly has its work cut out, since all the PC makers are racing to get into the market. The tablet market is going to see another new entrant in the form of Microsoft’s (MSFT - Analyst Report) Surface.

According to the research firm IHS iSuppli, Apple shipped 17 million iPads and captured 70.0% market share worldwide, while Kindle Fire shipped 1.03 million units for a 4.2% market share in the second quarter of 2012. Both players will see tougher competition from new players.

However, Apple’s dominant position is unlikely to be affected just yet because the user experience and ingenuity of iPads is still unmatched by other tablets in the market. Further, the smaller iPads, if introduced, may give the 7-inch tablets a run for their money.

Amazon’s second quarter results were more or less within expectations. Reported revenue of $12.83 billion was down 2.7% sequentially and up 29.5% from the year-ago quarter. This was better than the guidance for the quarter of $11.9-13.3 billion (down 4.4% sequentially, or up 27.1% year over year at the mid-point) and in-line with consensus expectations. Year-over-year revenue growth was 32%, excluding an unfavorable currency impact.

Currently, Amazon has a Zacks #3 Rank, which implies a Hold rating in the near term.

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