Amazon to Sell Kindle Fire Below Cost
There have been some questions why Amazon can sell its Kindle Fire for just $199 and there has been speculation that Amazon may be taking a loss with every Fire sold. IHS seems to confirm those rumors.
According to a teardown conducted by IHS, the fire has a bill of materials (BOM) of $191.65. However, that does not include the cost of assembly. Including manufacturing, each Fire is estimated to cost Amazon $209.63. And even that price does not include shipping and secondary cost such as R&D and marketing and PR. The actual cost of the Fire on Amazon's balance sheet may be much closer to $225 per unit.
IHS said that even if the sale of digital content is factored into the cost/revenue equation, Amazon is likely to make a marginal profit of just $10 on each Fire sold. However, Amazon's interest with the Kindle Fire is not to make profits of hardware or digital books anyway. IHS noted that what Amazon really wants is to get Fire users to "buy shoes, diapers, and every other kind of physical product imaginable." Amazon's retail business generated $34 billion in sales in 2010.
According to the market research firm, the most expensive component in the Fire is the $87 touch screen, followed by a $15 applications processor. IHS said that it will be providing a detailed teardown in the near future.