Kindle Fire virtual teardown puts cost at $209.63, about $10 above retail

Computerworld - The Kindle Fire tablet costs $209.63 for materials and manufacturing expenses, more than $10 above its $199 price tag, according to a virtual teardown by IT research firm IHS iSuppli.

Even so, iSuppli said Amazon.com is expected to sell enough digital content with each Fire tablet to generate a marginal profit of $10. iSuppli didn't estimate what Amazon will earn from sales of goods other than digital content, but that figure could be significantly higher, since physical products account for the majority of Amazon's sales.

"The real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content," iSuppli said in a statement. "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."

To emphasize the importance of physical goods to the online retailer's bottom line, iSuppli noted that Amazon generates its profits on sales of "shoes, diapers and every other kind of physical product imaginable."

"The importance of this strategy cannot be underestimated," said iSuppli, noting that "no retailer has managed to create an umbilical link between digital content and a more conventional retail environment. With [the Kindle Fire], Amazon has created the most convincing attempt at this yet."

The Kindle Fire is not so much a low-cost tablet as a "super e-book reader," iSuppli said, although it predicted that the device will be successful and could become the No. 2 selling tablet after Apple's iPad, which starts at $499.

The Kindle Fire goes on sale Nov. 15, and iSuppli said it plans to conduct a complete physical teardown of the tablet at that time.

A preliminary estimate of the cost of the Kindle Fire, not including manufacturing expenses, includes $87 for the 7-in. display and touchscreen, which is the most expensive component, plus $70.40 for the circuit board and $25 for memory, according to iSuppli. The Fire's processor is likely a dual-core chipset that costs $15, iSuppli said.

The research firm also noted that Amazon likely saved costs by hiring Quanta Computer in Taiwan to manufacture the Kindle Fire. Quanta is the same company that makes the PlayBook tablet for Research In Motion. "Because Quanta engages in product design, it likely is repurposing much of the expertise it gained from developing the PlayBook for use in the Kindle Fire," iSuppli said. Another company that conducts product teardowns, UBM TechInsights, reportedly estimated the cost of Fire tablet's materials at $150, with about $10 more for manufacturing costs, according to the Wall Street Journal. TechInsights could not be reached for comment.

The biggest difference is that TechInsights put the cost of the touchscreen and display at $60, which is $27 less than iSuppli's estimate. iSuppli also listed $11 for the plastic case making up the body of the Fire, while TechInsights didn't break out that item, the WSJ noted.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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