A little over a year after Amazon released the Fire Phone and saw its fortunes fall as consumers just couldn’t be made to take an interest, Amazon is rethinking its personal electronics division entirely.
Which means layoffs, lots of layoffs.
As part of the great retrenching, Amazon has dismissed dozens of engineers out of Lab126 — the super-secret hardware development center that was responsible for the Fire Phone. The precise numbers removed from the approximately 3,000-person division have not been quantified as yet — Amazon generally has employees sign NDAs as a term of receiving severance — but these layoffs are unusual insofar as they are the first Lab126 has faced in its 11-year history.
And a reduction in size is not the only big switch in the hardware operations. The lab’s big projects — like a large screen tablet, for example — have been scuttled or scaled back as the division is entirely redrawn.
This is the second big shock to the lab this year. Jon McCormack, a widely respected top engineer in the program and the CTO for devices in the division, jumped ship to work for Google. McCormack was a six-year veteran in Amazon’s hardware unit. He made a quick and uneventful sojourn to Yahoo before returning to the Amazon mothership for about six months.
He didn’t offer a reason for leaving.
Lab126, by all reports, is a difficult place to work and has been made more difficult since the flop of the Fire Phone. Priorities often shift, roles are allegedly not well-defined and many of the better workers seem to move on to more hardware-centered shops, according to Wall Street Journal reports.
“What Amazon makes are devices that are not too flashy, but they are inexpensive and they are simple to use,” said Tom Mainelli, an IDC analyst. “Mostly, they are another way to serve up content that Amazon can sell you.”
The phone was an expensive misstep, and it has lead to some shifting priorities around tech development internally, according to sources close to the situation. Halted or scaled back are Amazon’s plans for a digital stylus called Nitro, designed for digital shopping lists; a device called Shimmer, which appears to have been an image projection unit; and something called Project Cairo, which apparently involved a 14-inch tablet screen.
The company’s Internet of Things developments seem to still be on. A high-end computer for the kitchen, currently called Kabinet, remains underway.
“The next logical step for them is a fully connected home,” said Mainelli. “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.”
Unlike Apple, Amazon is not a device company and doesn’t seem all that concerned about making money on them. CEO Jeff Bezos has noted that his goal is to sell the devices basically at or near cost, because from Amazon’s end the money is not in the device but rather the goods and services the device inspires one to buy — from Amazon.
The cuts to Lab126, however, are more than just a switch to how Amazon views its future in hardware and are perhaps reflective of a shifting opinion on capital spending. Amazon has for many years been an unapologetic booster of growth, meaning whatever revenue it brings in it immediately plows right back into the business operations or product development. But Q2 2015 saw the firm’s CFO take a different tack and tighten up cost controls, which netted a $92 million profit that surprised the Street and sent the company’s stock skyward.
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