iSuppli tears down the Amazon Kindle Fire: cost of materials exceeds the actual price

We've previously heard estimates that the Amazon Kindle Fire sells for less than it actually costs, leaving Amazon at loss, but now iSuppli has given its definite confirmations saying that the 7-inch tablet costs exactly $201.70, nearly $2 more than the price it retails for. The tablet however differs from the mainstream Android in that it's basically a front window for the huge Amazon store, and we shouldn't forget that Amazon is first and foremost a content company, so that's where it wants to strengthen its sales. 

Earlier, iSuppli estimated the cost of the Kindle Fire at around $210, but now it revises that estimate: “Amazon has made some low-cost component selections and has capitalized on its procurement advantages, resulting in the Kindle Fire, though clearly subsidized by Amazon, costing slightly less to make than originally expected.”

But basically, this confirms that Amazon is willing to lose some money up front in order to catch up in volume. Digital media sales are likely to make up for that and so are services like Amazon Prime which costs $79 a year. This contrasts strongly with Apple's sales model where the company relies on big hardware margins but tiny digital content profits from iTunes.

Amazon also took a couple of shortcuts in hardware cutting on cameras and Bluetooth connectivity, and using only 512MB of RAM and 8 gigs of internal storage. “We expected to see a certain wireless module that’s commonly been seen in other tablets, and we were surprised that it wasn’t there. There was a cheaper one with fewer features that saved them a few bucks,” iHS analyst Andrew Rassweiler says.

The dual-core processor in the Kindle Fire is probably its most notable hardware feature and it's the one taking the biggest chunk of the bill of materials. Amazon uses the Texas Instruments OMAP 4430 chip seen in recent phones like the Motorola Droid Bionic and it costs Amazon around $25, or 12% of the total cost. When it comes to the other rather expensive part of the slate, the touchscreen the company went with a pretty unknown producer Ilitek, which also allowed it to cut some costs.

source: iSuppli