Amazon takes $170M charge on Fire Phone

The company discloses that it had $83 million worth of unsold Fire Phones at the end of the third quarter.

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Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
2 min read

Amazon's Fire Phone is proving to be a pricey flop.

The Fire Phone hasn't been a huge hit for Amazon. CNET

Chief Financial Officer Tom Szkutak disclosed on a conference call with investors Thursday that the company took a $170 million charge related to the write-down of costs associated with its smartphone.

The struggle underscores the difficulty of entering the smartphone business, where Apple remains the lone player able to generate significant profits and even market leader Samsung has had difficulties. The smartphone was supposed to be one branch of Amazon's expanding family tree of devices, which has grown from a single e-reader to tablets, a media-streaming box and the smartphone.

The company earlier Thursday reported a third-quarter loss that significantly widened over a year ago and missed Wall Street expectations, while warning that its fourth-quarter revenue would also disappoint. The Fire Phone charge was a large component of the $437 million lost in the period.

In July, Amazon released the Fire Phone, its first foray into the smartphone business, through an exclusive partnership with wireless carrier AT&T in the US. The phone has failed to make a dent in the market, and after two months, went from $200 to 99 cents with a two-year contract. In the UK it's free on various contracts from the O2 network.

Amazon touted the Fire Phone's unique ability to display 3D images and graphics, as well as its ability to scan certain products and media for additional information and purchasing options. While AT&T promised it a flagship slot in its stores, it was hampered by a competitive slate of alternative smartphones, as well as from consumers waiting for the new Apple iPhone 6 and iPhone 6 Plus or Samsung Galaxy Note 4 instead. The Fire Phone, like the Fire tablets, also run on a heavily altered version of Android and features its own, more limited app store.

It was likely also hampered by its decision to sign an exclusive deal with AT&T in the US. At a time when most high-profile smartphones opt to go with multiple carriers, Amazon tied itself to AT&T in exchange for more prominent promotional positioning in the carrier's stores.

"There are a lot of reasons it failed, but the key is that Amazon provided no good reason for consumers to buy it," said Avi Greengart, an analyst for Current Analysis.

The Fire Phone charge was largely related to the cost of goods sold, Szkutak said. Roughly $25 million of the charge was related to international costs, with the remainder related to North America.

Amazon had roughly $83 million worth of inventory on hand at the end of the third quarter, Szkutak said. He declined to comment on how it would affect the company's forecast for the fourth quarter.

Amazon shares fell 11 percent to $278.41 in after-hours trading. It closed its regular trading at $313.18.