At $199, Amazon is selling the Kindle Fire slightly below the cost it takes to manufacture the tablet computer, according to market research firm IHS iSuppli.
In a “teardown” estimate published Friday, IHS iSuppli said it costs $201.70 to manufacture the Kindle Fire, which Amazon began shipping to customers this week.
“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,” IHS iSuppli’s Andrew Rassweiler said.
“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,” Rassweiler said.
He compared Amazon’s business model to that of 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,” he said. “However, they expect to more than make up for that loss with a two-year service contract.”
The IHS iSuppli estimate only takes into account hardware costs and not software, licensing, royalties or other expenditures.
At $87, the most expensive component in the Kindle Fire is the touchscreen display which Amazon sources from LG Display and E Ink Holdings, according to IHS iSuppli.
Amazon refuses to give sales figures for the Kindle electronic book reader or the Kindle Fire but the company said this week that the Kindle Fire is the “best-selling” item on Amazon.com.
The Kindle Fire has a seven-inch (17.78-centimeter) screen, smaller than the iPad’s 9.7 inches (24.6 cm), connects to the Web using Wi-Fi and is powered by Google’s Android software.
It does not have a camera or the 3G connectivity featured on other tablets but it gives buyers easy access to Amazon’s online store, which sells books, music, movies, television shows, games and other content.