Amazon Kindle Fire
Amazon CEO Jeff Bezos holds up the new Kindle Fire at a news conference during the launch of Amazon's new tablets in New York, September 28, 2011. Reuters (Nasdaq: AMZN), the No. 1 e-retailer, reported first-quarter results that easily beat analysts' estimates because of soaring sales of its Kindle Fire tablet.

The bookseller-cum-e-marketer said first-quarter net income fell 35 percent to $130 million, or 28 cents a share, from $201 million, or 44 cents a year ago. Revenue jumped 34 percent to $13.1 billion.

While the earnings drop had been expected because CEO Jeffrey Bezos said the company would do what it took to build share for the Kindle Fire, the income drop was far less than expected. Analysts had thought net income would be only 7 cents a share on revenue of only $12.9 billion.

Kindle is the bestselling e-reader in the world by far, Bezos said. However, the Seattle company didn't announce how many had been sold.

Amazon shares closed at $195.99, up $1.57, up 11 cents, while shares of Apple (Nasdaq: AAPL), the world's most valuable technology company, fell $2.30, to $607.70.

After hours, Amazon shares soared nearly 10 percent, to $215.44.

Besides books, clothes, appliances, electronic products and a department store of products, Amazon is battling Apple's iPad with the Kindle Fire, introduced in the fourth quarter, as well as older models of the Kindle.

Bezos wants to knock Apple's market share from near dominance in 2010 to lower levels now by selling the lower-priced Kindle Fire well below the iPad's $499 list price and offering more and more titles for his Amazon Prime entertainment services.

Market analysts say the strategy is working and already forced Apple to institute two-tiered pricing, keeping the latest iPad at $499 but the older iPad 2 at $399, still $200 more than the Kindle Fire and $300 more than the Kindle.

During the fourth quarter, Forrester Research said Apple's tablet market share was trimmed to 54.7 percent from 61 percent a year earlier. Amazon, which sold 5.5 million Kindle Fires in its first quarter boosted its share to 17 percent from zero in 2010. By February, Amazon accounted for about 54 percent of the Android tablet market, ComScore reported.

To be sure, Amazon didn't announce how many Kindle Fires or Kindles were sold in the first quarter, holding to precedent. By contrast, Apple reported selling 11.8 million iPads, bringing the cumulative total to nearly 67 million in two years. Others, such as Samsung Electronics (Pink: SSNLF) and Lenovo Group (Pink: LNVGY) have also entered the tablet sector.

To date, major retailers have generally reported earnings growth. Amazon's e-retailing rival, eBay (Nasdaq: EBAY) reported stronger-than-expected first quarter results.

Here some other key points:

Forecast for higher earnings: Amazon forecast second-quarter earnings will be as high as $13.3 billion, with operating income ranging from a loss of $260 million to a profit as high as $40 million.

Analysts had expected second-quarter earnings of 19.5 cents a share. Revenue was expected to keep surging, reaching only $12.82 billion from $9.9 billion in 2011.

New services, especially telecommunications. Apple's third version of the iPad provides connections to wireless carriers' long-term evolution (LTE) networks. The Kindle Fire lacks that capability.

To compete, though, CEO Bezos, a Princeton-trained electrical engineer, has personally filed patents for certain innovations. Amazon's principal Taiwanese manufacturer, Quanta Computer (TPE: 2382) could execute the design whenever needed.

Adding LTE would increase the cost of the Kindle Fire, though, and might not be desirable. Stay tuned.

Cash and investments. If Amazon sacrifices near-term profit for long-term share, the company will need plenty of cash to tide it over. The company reported cash and investments of $5.71 billion, down from $9.6 billion in December. But $960 million went to buy back shares.

By contrast, Apple reported cash and investments of nearly $110 billion as of March 31.