Research firm estimate: The $199 Kindle Fire costs $201.70 to make

There’s been a lot of speculation that Amazon.com is selling its new Kindle Fire tablet at a loss, hoping to make up the difference by selling more books, movies and music. But the research firm IHS iSuppli — which initially forecast in September that the Kindle Fire cost $209.63 to make — has revised that estimate after a detailed teardown of the device. And it found that the new device is selling for about the same as it costs to make.

“…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,” said IHS iSuppli in a release today.

So, what’s the new tally? That would be $201.70.

As All Things D notes, Amazon.com is likely to start making money on the device itself as prices fall on components, including the estimated $24 worth of Texas Instruments’ chips.

“That $25 worth of TI chips will cost about $12 in the near future, meaning that Amazon will in time be able to sell the same device but at a much lower cost to build,” notes Arik Hesseldahl of All Things D. “Of course, if it’s successful, consumers will want one that’s a little more fabulous, perhaps with a bigger screen, for example.”

Adding to the lower cost is a lower-capacity battery than what is found in the iPad and basic 4Gbits of low-power mobile DRAM; and minimal box contents. (iSuppli notes that many new smartphones now feature 8Gbits of DRAM).

At the WTIA predictions dinner in Seattle last night, several of the panelists noted Amazon’s strategy of selling the device at a slight loss.

“They are going for volume and sockets,” said Rob Glaser, the chairman of RealNetworks. “They are clearly trying to drive massive share, and they have found a segment of the market from a price point standpoint Apple doesn’t cover and I think it will be a very interesting impact.”

Dan Rosen, chairman of the Alliance of Angels, said he thinks Amazon.com is pursuing the right strategy with its loss-leading device if the goal is to attract people who mainly want to consume content rather than create it.

“At the end of the day, if it is about consuming content, I think Amazon has it exactly right — a cheaper device that’s designed specifically for content that’s well integrated with Amazon services,” said Rosen. “I think it is a great model, and I think they will make a ton of money and will be hugely successful.”

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  • Guest

    Congratulations to Amazon on improving its costs! At the rate it’s going, the Kindle Fire will cost nothing to make in February 2015.

    Incidentally, how did iSuppli do a teardown of a Kindle Fire on September 30? The devices only started shipping this week.

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