About half of the developers surveyed by Appcelerator and IDC in North America said they considered the Kindle Fire their primary target, on par with interest for the iPad prior to its launch in April 2010. Pre-orders for Amazon's tablet have remained strong and the company may have recently increased its orders to more than 5 million units by the end of 2011. Amazon is shipping the Fire starting this week.

Early signs do indicate that the iPad's first true competitor may well have arrived on the scene. Lending more fuel to speculation that the tablet will suffer at the hands of its latest rival are rumors that Apple has asked suppliers to reduce shipments of supplies for its iPad and iPhone. Those rumors have weighed on the stock recently.

However, we maintain our price estimate of $502 for the Apple stock, which is about 30% above market price. Our estimate for Amazon of $233 is just under 10% ahead of the market price.

Kindle Fire more than just another Android tablet

The Kindle Fire has managed to captivate the consumer electronics industry with its $199 price point, significantly undercutting other tablets. The lower price point, coupled with Amazon's well-known brand and large media library, are poised to turn the Fire into the second hit tablet after the iPad.

There is no doubt that Amazon will shake up the market for tablets, possibly rendering the $500 tablet obsolete gradually. However, we feel that the most immediate impact will be felt not by Apple but by its competitors such as Research In Motion's Playbook and pricey Android rivals such as Motorola's Xoom and HTC's Flyer. Why spend $600 for an Android tablet from present Google partners if you can find most of what you need in a $199 Kindle Fire?

Apple's rivals in the tablet market are sizable but they haven't been able to significantly dent iPad's demand so far. However, most of these tablets, including Kindle Fire, run on Google's Android, which makes Google Apple's major competitor.

On the surface, Kindle Fire should be good news for Android as it runs on Android. The reality is that Kindle Fire is not a pure Android product. Amazon has taken some of the basic code of Android and built its own operating system on top of Android, thereby differentiating itself from the Android pack.

Fragmentation a key downside to Android

Fragmentation is the biggest enemy of any operating system. As time goes on and Google continues to develop Android in one direction while Amazon continues to take the Kindle Fire down its own unique path, the two platforms will be less and less alike, forcing developers to choose between Android and Kindle's OS. At some point in the future, Kindle Fire might pose a threat to other tablets running the very operating system it had once drawn its identity from.

Amazon is also not using Google Android Market. Appstore 2.0 from Amazon is fully integrated in Kindle and appears to be a much more user friendly implementation compared to Android Market from Google.

While Google and Android-based tablets face the biggest threat from Kindle Fire, Apple will eventually start to feel the effects of a lower-priced competitor. We do not see a 7-inch tablet providing an iPad-like user experience, but as tablets see mass adoption and the market matures to include customers who are far more price sensitive than the early-adopter crowd, Apple may well need to do a rethink on the iPad's price.