Apple and Amazon fall short of expectations as Tablet wars heat up

The Kindle Fire (Getty Images)

The tablet wars just got more interesting.

Apple tapped the brakes on its seemingly unstoppable rise, saying Thursday that it sold fewer iPads in the fourth quarter than analysts had expected. It also warned that sales and profit in the next quarter would be more modest than in the past because of rising costs.

Despite creating the tablet industry in 2010, Apple is under more competitive pressure than ever before. In response to rivals, the Cupertino, Calif., company this week introduced a cheaper tablet with a smaller screen.

Meanwhile, Apple's primary tablet challenger, Amazon.com, disappointed investors Thursday, announcing an operating loss of $28 million in the third quarter. Contributing to the loss was the company's decision to price its Kindle Fire tablet low, forgoing any profit, in the hope of selling books, videos and other content for the device.

Shares of both companies dropped. Apple's stock fell about 1.2 percent in regular trading, dipping below $600 for the first time since July after hours before recovering a bit. Amazon's stock dropped 2.7 percent in regular trading and fell again after hours.

As the two tablet leaders ramp up their offerings, new competition is crowding the marketplace.

Microsoft on Thursday launched its Windows 8 Surface, a tablet with a keyboard aimed at users who want to easily access the company's suite of business applications. Likewise, Google, Barnes & Noble, and even Toys R Us have tablets ready for the holidays.

Apple chief executive Tim Cook panned the new rival offerings in a call with analysts and investors.

Cook said Apple made "hard choices" when creating the iPad so that it didn't try to do too many things. "I suppose you can design a car that can fly and that floats, but I don't think it would do all those things very well," Cook said.

Apple's profit rose 24 percent in the quarter on revenue of $41 billion, in large part because of strong iPhone sales. But its sales of 14 million iPads were lower than expected and down from 17 million in the previous quarter.

Apple said it expected earnings per share of $11.75 and revenue of $52 billion, down from previous forecasts of $15.49 earnings per share and revenue of $55 billion.

Amazon's sales rose 27 percent, to $13.8 billion, in its fourth quarter, but it said it also lost 60 cents a share in the quarter. Amazon blamed some of that loss on its costly investment in Washington-based coupon site LivingSocial, but analysts said the cost of the Kindle Fire also contributed.

"Our approach is to work hard to charge less," chief executive Jeff Bezos said. "Sell devices near break-even, and you can pack a lot of sophisticated hardware into a very low price point."