How Much is Amazon Really Losing on Kindle Fire Sales?

Posted 11/18/2011 at 9:04am | by Paul Lilly

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Amazon is almost certainly losing money on each Kindle Fire tablet it sells, but the dollar amount might not be as high as some analysts originally thought. According to preliminary findings from IHS iSuppli's teardown analysis, the Kindle Fire carries a BOM (build of materials) cost of $185.60 for the hardware, and $201.70 overall when factoring in manufacturing services expenses.

That figure is slightly lower than IHS iSuppli's estimate back in September when it pegged the BOM at $209.63 ($191.65 for the hardware). It's also a bit murky, because by IHS iSuppli's own admission, it doesn't take into account additional expenses such as software, licensing, royalties, or any other expenditures.

"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," said Andrew Rassweiler, senior director, teardown services for IHS. "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. This is a similar business model to 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. However, they expect to more than make up for that loss with a two-year service contract."

The most expensive subsystem of the Kindle Fire is its display and touchscreen, which IHS iSuppli estimates at $87 combined, or 46.9 percent of the BOM. The other big dollar item is the main PCB, which runs $64.45 and includes the memory, processor, WLAN, and other peripherals and PCBs.

Image Credit: Amazon