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Devices/smartphones

Amazon's Kindle Fire Sells for $55 Over Cost

Amazon.com Inc. (Nasdaq: AMZN)'s Fire tablet packs in US$143 worth of materials, making the Internet services company $55 on every device it sells, UBM TechInsights learned from a teardown this week. (See Will Amazon Fire Up the Tablet Market?)





The teardown confirmed estimates the Light Reading sister company made when the tablet was first announced, and debunked theories that the fire was a loss leader. TechInsights initially estimated a $150 bill of materials (BOM), but adjusted it after learning Amazon saved $4 by not using a higher-end accelerometer/gyroscope combination and by choosing a low-cost Wi-Fi chip. (See Amazon's $199 Tablet Is No Loss Leader.)

"Our initial estimates are still pretty strong and we attest that Amazon is still making a healthy profit on each tablet sold," Allan Yogasingam, TechInsight’s technical marketing manager, writes in an email to LR Mobile.

Yogasingam says there weren’t too many surprises inside the tablet except for one major design win. ILITEK, a Taiwanese company, won the touch-screen controller order, beating out larger competitors like Texas Instruments Inc. (NYSE: TXN), which had several other design wins on the board.

In the charts above, TechInsights breaks out the components of the new tablet, followed by the costs. The Fire is compared to both the 3G Apple Inc. (Nasdaq: AAPL) iPad 2 32GB and the BlackBerry BlackBerry Playbook, the device it most closely resembles.

A loss leader?
IHS iSuppli , without having done a teardown, estimated that the Fire costs Amazon $209.63 to build, suggesting a loss on each one sold. The analyst firm put the touch screen at $17 more than TechInsight's did in its findings, as well as estimating the battery to be $6.25 more expensive.

Either way, Amazon is building its business on the digital and physical goods it will sell once the tablet is in consumer hands. It's a means to an end more than a moneymaker on its own. IHS iSuppli estimates that when digital content per device is factored in to the overall BOM and manufacturing costs, which it had at $209.63, Amazon will make around $10 on each Kindle sold. This doesn't factor in physical sales, the bread and butter of Amazon’s business model.

"Amazon is selling it direct through the website and has the connection to the content right there," TechInsight VP of Business Intelligence Jeffrey Brown said in a pre-launch interview. "You go for the content first; then they mention they have the tablet for $199."

— Sarah Reedy, Senior Reporter, Light Reading Mobile

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sarahthomas1011 12/5/2012 | 4:48:40 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

iSuppli hasn't put out a new cost esimate, but says one is coming. They agreed that Amazon went the low-cost route on some parts to save money. They also pointed out that given all of TI's wins in the device, it probably makes up $24 of the device. That's pretty big for the vendor.

DCITDave 12/5/2012 | 4:48:39 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

Maybe, but what if the people who are debating whether $200 is too much to spend on a tablet just get a smartphone instead?


I think the iPad is in a better spot to lure away a subset of laptop/netbook users. The Kindle is only in a position to lure away a subset of tablet users (most of whom are iPad owners).


My point being that I think most of the folks in the market for a tablet aren't as budget conscious as we might think -- and that favors Apple more than Amazon. They are, after all, debating whether to spend hundreds of dollars to make paperback books more portable.


ph


 

DCITDave 12/5/2012 | 4:48:39 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

Even if the Kindle Fire were $50 I think I'd just save up and get an iPad. It seems to do all of what I'd use a tablet for, without compromising on screen size, power, etc.


The Kindle will be a popular device but I wonder how many will regret not spending a little more for something a little better when all is said and done.


Also, I wonder where Microsoft, HP, Sony and other consumer device makers are in coming up with something that's more a Kindle-killer than an iPad-killer. It seems that with the right combo of third-party services, the Kindle is an easier target for competitors at the lower price point. But we'll see...

sarahthomas1011 12/5/2012 | 4:48:39 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

Yeah, that's probably another target group. And, I'd also add in people who wanted an eReader but weren't quite convinced until the Fire was announced and it was that, plus so much more.

sarahthomas1011 12/5/2012 | 4:48:39 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

I wouldn't say the iPad is just a little more though. It's significantly more. I think the Fire will appeal to people who had never thought of getting anything, not debating Fire v iPad, and for which $200 is pretty expensive still, but better than the cheap, crappy Androids on the market.

DCITDave 12/5/2012 | 4:48:38 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

Now what I can't figure out is where the PlayBook fits in. At least with the Kindle there's an argument that any number of consumers could find the device appealing. 


What would be the thing that takes someone from iPad to PlayBook? Connectivity? Something the boss paid for? I dunno. I think they're in trouble.

opticalwatcher 12/5/2012 | 4:48:36 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

The value of the Fire depends on if you are up high looking down or down low looking up.


The Nintendo DSi sold for a similar price (adjusted for inflation) and has a much smaller screen and slower processor, and has very limited applications and a terrible browser, yet it sold something like 17 million.


I don't think it would have sold 100,000 if its price was $400. Certainly none but the most wealthy would buy one for their kids.


I'm guessing the Fire will get quite a lot of Christmas sales.


 


 


 

DCITDave 12/5/2012 | 4:48:32 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

Yeah, great point. The specs mean less and less these days. It's more about the whole picture. That's why I'm worried for the RIM folks. Apple has the iCloud. I'm a customer. Very happy. Amazon has excellent cloud storage at reasonable prices. I'm a customer. Very happy. RIM doesn't have the services portfolio to make their devices that much more valuable. They're becoming HP all over again.

pjbclarke 12/5/2012 | 4:48:25 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

so despite the fact that their release says the analysis was done by 'IHS iSuppli Teardown Analysis Service' are you saying they didnt actually do one ?


http://www.isuppli.com/Teardowns/News/Pages/Amazon-Kindle-Fire-Costs-$201-70-to-Manufacture.aspx

sarahthomas1011 12/5/2012 | 4:48:24 PM
re: Amazon's Kindle Fire Sells for $55 Over Cost

When this was posted yesterday, they had only done a "virtual teardown." They completed their actual teardown today, and found a $191.65 BOM, but upped it to $209.63 for extra costs. So, they say Amazon is taking a loss, while TechInsights says they're making a profit on each sold.

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