Amazon are making a loss of $3 on every Kindle Fire tablet sold, according to researchers IHS.
The experts took the new 7 inch Kindle Fire apart and costed each component, estimating total cost of manufacture for Amazon to be $201.70 – almost $3 over the asking price of US$199.
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|Tabs squeeze: Amazon could get burned with Fire, if sales don’t soar.|
The 8GB Android tab with e-reader, WiFi went on sale last week in the States is looking to attack Apple’s iPad domination – by undercutting its price by more than half – iPad 2 sells for US$499.
The Kindle Fire’s touchscreen display is the priciest part of the new tab – costing $87, the Printed Circuit Board (including the OMAP4430 Texas instruments processor) totals $64.45, battery $16.50, manufacturing costs $7.10, according to IHS iSuppli.
The processor, made by Texas Instruments costs $14.65, accounting for 7.9 %of the Kindle Fire’s total cost and similar to the one used Research In Motion’s PlayBook RDJ21WW tablet, as well as the Motorola Droid Bionic XT875 and LG Optimus 3D P920 smartphones.
But IHS costings does not include manufacturing, research and development cost which would push cost far above $201.70 mark.
So why are Amazon prepared to go at a loss on Fire?
“The Kindle Fire, at a retail price point of $199, is sold at a loss by Amazon, just as the basic Kindle is also sold at a loss at the current $79 retail price point,” said Andrew Rassweiler, senior director, teardown services for IHS.
“Amazon makes its money not on Kindle hardware, but on the paid content and other products it plans to sell the consumer through the Kindle. This is a similar business model to wireless companies such as AT&T or Verizon.
“They sell you a phone that costs them $400 to $600 or more to make for a price of only $200. However, they expect to more than make up for that loss with a two-year service contract.”
But Amazon boss Jeff Bezos previously declared the e-tailer’s intention to make money on the 7 incher, saying “we want the hardware device to be profitable and the content to be profitable. We really don’t want to subsidize one with the other.”
However, if IHS estimates are on the ball, the online king is clearly prepared to make a loss on the hardware but coin it on software and Android ecosystem via Android Apps Store, e-books and music.
Amazon is one of the most visited websites in the world, so it is likely to pay dividends over the long term if its tab gamble pays off but could get burned badly is this fails to happen.
IHS also evaluated the cost of Apple’s iPhone 4S recently and found it was far from generating a loss for leader Apple, as the 4S 32GB model costs just $175 to make- despite being sold for almost four times its raw cost.