While I am sure Amazon stockholders and financial types care very much about a net loss, the consumer market does not. They are very effectively competing in the market for tablets. Whether the way they are competing is good for business is an entirely separate matter.
This is already a known fact. Their hardware margins are razor thin because they are using the hardware to drive movie, music, book and shopping sales.
A lot of that loss was due to their Living Social investment, most of which was written down. And if they had large manufacturing expenses, are those for devices made and sold last quarter? Or is it for devices made last quarter to be sold this quarter?
That's relevant to a holistic discussion about Amazon's strategy vs. Apple's, but beyond the narrow topic of display resolution.
Apple plainly chose the iPad mini's resolution to ease app compatibility. That this leaves it with a lower-density display is an uncomfortable fact. How much it'll matter to the regular customer, I don't know.
I would have just moved on rather than drawing attention to this fact, but Apple instead chose to return to physical screen size. Personally, I've always valued other aspects of displays more, but they made their call.
Given that Amazon posted a net loss this past quarter in part due to manufacturing expenses, I wouldn't call their strategy "effectively competing".