Report: Amazon scales back hardware development after Fire phone flop

Amazon (NASDAQ: AMZN) has cut dozens of engineers from its consumers hardware unit in recent weeks and has stretched out its timeline for future smartphone development indefinitely, according to the Wall Street Journal, a sign that last year's Fire phone flop is coming back to bite the retailing giant.

The WSJ report, citing unnamed sources familiar with the matter, indicates that Amazon is pulling back on its hardware ambitions, and reassessing its priorities, which is causing turmoil at the secretive hardware unit, known as Lab126. At one point, reports said, the company planned a stripped-down version of Fire phone, but that is apparently on hold.

It's unclear how many of the 3,000 people who work in Lab126 have been dismissed, the report said. Amazon started a broad reorganization at the unit last year after it became apparent the Fire phone was a commercial failure, the report said, adding that Amazon combined the tablet and e-reader group with the phone division. That left some of the engineers in the hardware unit with ill-defined or redundant roles, causing many to leave -- and Amazon hasn't filled many of the open positions. Some Lab126 workers told the Journal they are disappointed that Amazon's hardware development is so heavily aimed at creating devices that drive customers to purchase more on Amazon.com.

The report said Amazon has also stopped or scaled back other projects, including a smart stylus internally called Nitro, which would turn a users' scribblings into digital shopping lists; a device called Shimmer for projecting images on walls and other surfaces; and a 14-inch tablet code-named Project Cairo. Amazon is apparently still working on a high-end computer for the kitchen, dubbed Kabinet internally, which would serve as a hub for an Internet-connected home and let people use voice commands to buy merchandise from Amazon.com. Amazon is also developing a tablet with images that will seem to pop out at the user without wearing special glasses, the report said.

Amazon declined to comment, according to the report.

Earlier this week, reports emerged that Amazon's CTO of devices, Jon McCormack, left the company to join the Google (NASDAQ: GOOG) unit that works on advanced research projects, the second time he left the online retailer in the last year. McCormack, who worked for Amazon from August 2009 to December 2014, left for a two-month stint at Yahoo before returning to Amazon in March. According to his LinkedIn profile, McCormack is now a part of Google's Advanced Technologies and Products group, or ATAP. His new title is "head of ecosystem."

Although Lab126 has produced some hit devices, including Amazon's Kindle e-reader and the generally well-regarded Kindle Fire tablets, the Fire phone was a major bust after it was released in July 2014. Amazon said in October 2014 that it would book a write-down charge related to unsold Fire phone inventory and supplier commitment costs of $170 million. Consumers balked at the $200 price point and the fact that it was only available through AT&T Mobility (NYSE: T), a sentiment that did not change after the phone's price was cut to 99 cents two months after its debut.

Professional reviewers generally found the Fire phone's main features -- such as a 3D user interface called Dynamic Perspective and a service called Firefly that lets users identify and buy things -- interesting but gimmicky and not enough to justify its price. According to the Journal, some Amazon engineers said that Amazon CEO Jeff Bezos insisted that the Fire phone have a 3D screen and other features like facial recognition cameras that they privately regarded as weak selling points and unnecessarily expensive.

Still, Amazon keeps churning out devices. Last year, Lab126 unveiled 10 devices, including a TV set-top box, 180 Echo virtual assistant, a voice-activated speaker and a wand for scanning bar codes at home.

"The next logical step for them is a fully connected home," IDC analyst Tom Mainelli told the Journal. "With the data they have, they could soon be at the point where all the things you need just arrive at your home, without even asking."

For more:
- see this WSJ article (sub. req.)

Related articles:
Amazon's devices CTO leaves for Google's advanced projects unit
A year after Fire phone launch, Amazon posts blowout quarter - but remains mum on future phone plans
Report: Amazon to release Fire phone successor - but not until 2016
Amazon's Bezos defends Fire phone as a 'bold bet,' says 'stay tuned' for more phone developments
Amazon exec: We flubbed the Fire phone's pricing, but will keep improving the experience
Amazon takes $170M writedown on Fire phone

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