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. (continued...)