November 19, 2011
Amazon Losing Money On Each Kindle Fire Sold
Amazon is selling their new Kindle Fire tablet computer at a loss of nearly $3 per unit, members of the research firm IHS iSuppli revealed on Friday.
According to Edwin Chan and Alistair Barr of Reuters, IHS iSuppli reports that the device, which retails for $199 -- or less than half the cost of the cheapest model of the Apple iPad -- costs $201.70. Of that cost, $185.60 is the total cost of the components used in the Kindle Fire, with the remainder attributed to the cost of assembly and manufacturing.
Furthermore, AFP reports that the most expensive component used in the creation of the tablet computer was the touchscreen. The screen, which is outsourced to LG Display and E Ink Holdings, costs about $87, according to the iSuppli bill of materials. Other expenses, such as the cost of software, licensing fees, royalties, and so forth, were not factored into the IHS report.
Earlier this month, iSuppli also revealed that the basic $79 model of the Kindle e-reader was also being sold by Amazon at a loss. The company determined that those devices cost $84.25 to manufacture, with the bill of materials totaling $78.59.
"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," IHS iSuppli's Andrew Rassweiler told AFP on Friday. Rassweiler also compared their business model to those of wireless companies like AT&T and Verizon in that they will "sell you a phone that costs them $400 to $600 or more to make for a price of only $200“¦ [and] they expect to more than make up for that loss with a two-year service contract."
AP Technology Writer Peter Svensson notes that Amazon CEO Jeff Bezos had told the wire service back in September that the company hoped to make money off of the Kindle hardware, but would accept a lesser profit margin than many tech companies would.
"We want the hardware device to be profitable and the content to be profitable. We really don't want to subsidize one with the other," Bezos said, according to Svensson.
The AFP notes that Amazon had not revealed sales figures for either the Kindle e-reader or the Kindle Fire, but confirmed earlier this week that the Android-powered tablet computer with the seven-inch screen was the "best-selling item" on the retailer's website -- even though it lacks both a camera and does not support 3G connectivity, only Wi-Fi.
According to Chan and Barr, analysts predict that between four and six million units of the Kindle Fire will be sold during the holiday season.
"It's a good -- though not a great -- product and a very good value," Walt Mossberg wrote in the Wall Street Journal, according to Reuters. Mossberg added that the computer's hardware was "plain and clunky," referring to it as "a thick black box with zero style," but that he believed that it would "appeal to people on a budget and to those who envision using the iPad mainly to consume content."
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