This is not good news for Amazon, and it is also bad news for everyone else. Assuming that this price sticks around, Google, B&N, Kobo, Samsung, and most other tablet makers will have to drop their prices as well. The Kobo Arc and Nexus 7, just to name a couple examples, are priced to match the KFHD. Now the 32GB models will have to get cheaper otherwise the KFHD will look like a better deal.
Assuming this price is permanent, this will be Amazon's second major price cut on their new hardware. The price of the KFHD 8.9 was dropped by $100 just under a month ago.