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Last updated on April 18, 2014 at 16:09 EDT

Amazon May Lose Money On New Tablet Computer

October 1, 2011

Kindle Fire, the new tablet computer revealed by Amazon Chief Executive Jeff Bezos on Wednesday, costs $209.63 to make, or approximately $10 more than the device will sell for, Alistair Barr of Reuters reported on Friday.

According to Barr, the cost estimate comes from IHS iSuppli, who determined that the components that go into the computer cost $191.65, with additional manufacturing expenses raising the price to nearly $210.

“Based on IHS iSuppli’s estimates, the company may lose just under $10 on each Fire it sells,” the Reuters reporter said. “But Amazon is hoping the device encourages users to buy more products and services from the company, making up for the upfront losses.”

In a press release posted to the company’s website, Andrew Rassweiler of IHS noted that the Kindle Fire’s display and touch-screen cost an estimated $87, while the Main PCB carries a $70.40 price tag. The cost of the battery is estimated at $18.25, he added.

“The real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content,” Rassweiler said. “Rather, the Kindle Fire, and the content demand it stimulates, will serve to promote sales of the kinds of physical goods that comprise the majority of Amazon’s business.”

The company does not make a “substantial profit” by selling their Kindle units, e-books, or other digital content, he added. Rather, “the Seattle-based online-retail giant generates its profits on sales of shoes, diapers, and every other kind of physical product imaginable. Similar to Walmart and other large brick-and-motor retailers, Amazon´s content business is designed to lure in consumers to buy such everyday goods as well as other money-making items.”

Amazon CEO Jeff Bezos announced at a media event on Wednesday that Amazon´s Kindle Fire tablet computer will feature a 7-inch screen and will price for $199.  The device will run on Google Inc.´s Android operating system.

As previously reported here on RedOrbit, the Kindle Fire will only offer Wi-Fi connectivity and will also include a free 30-day trial of Amazon Prime, the company’s $79-a-year membership service to stream video.

It will feature a dual-core processor, weigh in at 14.6 ounces, and emphasize cloud computing, including back-up services through Whispersync technology. Furthermore, it will feature a web browser, dubbed “Amazon Silk,” which allows a device to make online content viewable either locally or via the cloud, which could help improve mobile browsing speeds.

“With its lower pricing than the iPad, and its positioning as a super eReader, the Kindle Fire may serve in fact to expand the tablet market beyond current expectations. As such, the Kindle Fire potentially could become the No. 2 selling tablet after the iPad,” Rassweiler predicted.

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Source: RedOrbit Staff & Wire Reports