Amazon Losing Money On Kindle Fire Hardware, IHS iSuppli Says

Amazon didn’t comment on the report’s findings. But comments made by Chief Financial Officer Thomas Szkutak in an earnings call last month provided a sign that the company wasn’t going to be making much, if any, profit from hardware alone from selling the Fire or its other new Kindle devices (CED Oct 27 p11). When Amazon thinks about “the economics of the Kindle business, we think about it in totality,” he said. “We think of the lifetime value of those devices. So we're not just thinking about the economics of the device and the accessories. We're thinking about the content,” too, he said.

The Fire “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, IHS senior director, teardown services. “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,” he said. That’s “a similar business model to wireless companies” including AT&T and Verizon Wireless, he said. “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 BOM and manufacturing cost figures provided by IHS on Friday were slightly lower than the preliminary estimates that the research company made in late September, before the tablet shipped. IHS then estimated the Fire carried a BOM of $191.65 and a total cost of $209.63 when factoring in the manufacturing and margin expenses (CED Oct 3 p6).

"Surprise design wins” in the Fire included the use of a touch-screen control-integrated source from the previously unknown Ilitek, and a wireless local area network module from new supplier Jorjin, IHS said. The use of an unfamiliar source for the touch-screen controller integrated circuit “reflects the growing trend of new suppliers entering the market,” it said. “Amid booming sales for touch screen devices, IC suppliers have jumped into the fray to satisfy the increase in demand.” The trend was also shown in recent designs including a Vizio tablet featuring a touch-control IC from EETI and the Lenovo A60 smartphone that used a touch-control IC from FocalTech Systems, IHS said. The Jorjin device provided Amazon with “a cheaper approach to implementing WLAN support, at just $4.50, yielding a $1 savings in BOM costs,” IHS said.

IHS said Texas Instruments “dominates” the Fire design. TI contributed the tablet’s applications processor, the TI OMAP4430, that IHS said costs $14.65 and represents 7.9 percent of the Fire’s total BOM. TI also supplied the tablet’s power management device and audio codec, providing TI with a total of $24 per each Kindle, or 12.9 percent of the BOM, IHS said. TI’s OMAP4430 applications processor was identified in a growing number of designs “dissected” by IHS, it said, including Research In Motion’s PlayBook RDJ21WW tablet, and the Motorola Droid Bionic XT875 and LG Optimus 3D P920 smartphones.

The “most expensive subsystem” in the Fire is the display and touch screen, at a combined cost of $87, or 46.9 percent of the tablet’s BOM, IHS said. Amazon sourced the display from LG Display and E Ink, and the display uses E Ink’s FFS technology, which LG Display licensed, IHS said. The Fire used 8 gigabytes of eMMC NAND flash memory, the research company said. The Fire torn down by IHS featured NAND flash supplied by Samsung, IHS said. It initially assumed that the Fire might offer as much as 8 gigabits of low-power DDR2 DRAM memory, but it said the device shipped with only 4 gigabits, cutting “a few dollars from our previous cost estimates,” it said. Elpida was the supplier of the DRAM in the Fire torn down by IHS. The NAND and DRAM created a memory subsystem costing $22.10, or 11.9 percent of the tablet’s total BOM, IHS said.