Amazon writes off $170M on weak Fire Phone sales. Surprise!

Amazon is making a $170 million write-off related to lower than expected sales of its Fire Phone, the company revealed today during its Q3 2014 earnings call with investors.

Shareholders and analysts have previously predicted that Amazon’s attempt to produce its own Android-based smartphone has largely been a failure. While Amazon didn’t specify the number of devices sold, independent research reports indicate that the company may have only sold 35,000 at the end of August, as VentureBeat previously reported.

Possible reasons for the lack of consumer interest in the Fire Phone could be its high price without a contract, not offering service on a variety of U.S. wireless carriers (initially it launched only on AT&T), and most importantly, the absence of distinct features to set it apart from competing high-end smartphones, as VentureBeat’s Devindra Hardawar pointed out in his full review of the gadget.

The write-off on the Fire Phone could cause Amazon shareholders to get nervous about the company’s strategy to offer hardware products at a loss to boost online retail sales as well as sales of digital media.

This is especially true because Amazon has traditionally declined to provide any sort of proof that its loss-leader strategy is working. For instance in Q3 2013, the company didn’t bother outlining progress of its strategy for hardware and was actually rewarded for it. Mind you, this was prior to the official launch of both the Fire TV set-top box and the Fire Phone — both of which were rumored to be in Amazon’s plans at the time.

But as after-hours trading reveals, Amazon shareholders aren’t so trusting this time around. The stock price was down nearly 12 percent to $276.17 at the time this article was published. That’s lower than the company’s 52-week low of $284.38.

It’s worth pointing out that another big reason for the shareholder revolt could be attributed to Amazon’s cloud revenue growth slowing down significantly compared to Q3 last year. If Amazon can’t stem that bleeding, it really calls into question the company’s decision to spend heavily on other parts of the business, such as Prime Memberships, gadgets, digital media, and grocery delivery.

And then there’s also that $1 billion acquisition of hot, gaming-focused livestreaming video service Twitch, and Amazon’s efforts to turn its Fire TV device into a serious gaming platform. Nearly every time I bring this up, GamesBeat managing editor Jason Wilson points out that the gaming community’s interest in Fire TV games is very low. That very well may change in the future, as it’s still too early to decide whether Amazon’s efforts will prove successful. But with Twitch presumably a big part of this gaming strategy (even if it’s simply to keep Twitch out of the hands of Apple or Google), there’s definitely more risk involved.