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Amazon blames legal costs for poor performance

The online retailer's results disappoint, and analysts don't see things getting any easier

Amazon has blamed legal costs for its disappointing fourth quarter results and says that it sees no sign of significant improvement in the near term.

The world’s largest online retailer has suffered a 32 percent drop in operating income to $55m (£31m) over the past year compared with $81m in the third quarter of 2004.

According to the company, the drop in income was mainly due the a one time payment of $40m it made to Soverain Software in settlement of a patent infringement lawsuit, but even without the legal costs, third quarter earnings were just 12 cents a share. Total sales rose by 27 percent to $1.86bn in line with company guidelines and above Wall Street’s estimate of $1.84bn but industry experts don’t think it will be enough to keep Amazon shares afloat.

The outlook for Amazon’s fourth quarter isn’t promising either as it predicts a slide in operating income by 17 percent to $135m compared to the fourth quarter of 2004. The company has predicted profits will be in the $165m-$240m range, with sales between $2.86bn and $3.16bn.

Despite this the company claims it did hit its sales and earnings targets and forecast similar results going forward with a 35 percent rise in operating cash flow for the fourth quarter.

Industry experts believe a rise in competition in the online retail market from competitors could lead Amazon to slash its prices even further and fear the retailer will suffer a decline in growth.

The online retailer was not in favour with customers recently after it had to cancel all orders for Samsung LNR409D 40 inch LCD after a major pricing error in early October.