Amazon Pays $201.70 To Build $199 Kindle Fire

Mark Long, <a href=''></a>

A teardown of the new Kindle Fire tablet performed by IHS iSuppli researchers found that it costs Amazon $201.70 to make a device that began retailing this week for $199. "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," said Andrew Rassweiler, senior director of teardown services for IHS.

However, the Kindle Fire hardware cost breakdown released by the analyst firm Friday only tells part of the story. Amazon had not disclosed what it is costing the online retail giant to roll out the tablet from a software perspective -- including software design, development and testing.

"We can safely assume that launching such devices from a software perspective requires a serious long-term commitment to morphing Android into what Amazon is looking for," said Al Hilwa, director of applications software development at IDC.

According to Hilwa, a development team of a few hundred people would ultimately be needed to support an ongoing product such as the Kindle Fire, including the requisite maintenance as well as product evolution.

"I have no specific information on this, but I have always imagined that the team working on iOS at Apple, end-to-end, well exceeds a thousand people," Hilwa said. "Doing the estimates for things like that is complex because of shared resources in an organization."

Display and Touch-screen Costs

IHS iSuppli noted that its preliminary cost calculations for the Kindle Fire only account for hardware and do not include additional expenses such as software, licensing, royalties, marketing or other expenditures. However, Rassweiler compared Amazon's strategy of selling its new tablet at a loss to the business models followed by wireless carriers 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," Rassweiler said. "However, they expect to more than make up for that loss with a two-year service contract."

According to IHS, the new Kindle Fire's single most-expensive subsystem is its display and touch screen, which has a combined cost of $87 and accounts for 46.9 percent of the device's total bill of materials. Featuring E Ink's FFS technology, the displays are being manufactured by LG Display as well as E Ink Holdings.

Semiconductor Suppliers

The dominant semiconductor supplier behind Amazon's Kindle Fire is Texas Instruments (TI), which supplies the OMAP4430 processor responsible for delivering the new tablet's core multimedia functionality as well as other parts. TI reaps $24 for every Kindle Fire sold, which is equivalent to 12.9 percent of the device's total.

TI's OMAP4430 is also found in a number of other electronic gadgets, including Research In Motion's PlayBook tablet as well as in smartphones such as the Motorola Droid Bionic XT875 and LG Optimus 3D P920. The 1-gigahertz dual-core chip features an IVA 3 hardware accelerator as well as an SGX540 3D graphics core, IHS researchers said.

The Kindle Fire's memory subsystem -- which consists of 8GB of eMMC NAND flash memory as well as 4 gigabits of low-power DDR2 DRAM memory -- costs Amazon $22.10, or 11.9 percent of the total. According to IHS researchers, Samsung is supplying the NAND flash chips while Japan-based Elpida makes the new Kindle Fire's DRAM memory components.