ONLINE RETAILER Amazon is losing $10 on every Kindle Fire it sells.
Launched last week, Amazon's Kindle Fire tablet is seen as a major threat to Apple's Ipad due to its low price tag. Amazon has priced the Kindle Fire at $199, significantly lower than Apple's devices, making many wonder just how Amazon can price its tablet so low when other device makers have pitched their products at prices close to what Apple charges for its Ipads.
Analyst outfit IHS Isuppli has estimated that Amazon will be making a $10 loss on each Kindle Fire. The ploy is to use the Kindle Fire as a conduit for selling content, products and services, according to Isuppli, in the same way that Apple uses its IOS devices to push content on Itunes.
According to Isuppli's bill of materials the device costs just over $209 to make with the most expensive item being the touchscreen display costing $87.00. In terms of electronics the memory chips are the most expensive, accounting for $25, followed by the battery and processor costing $18.25 and $15.00, respectively.
It is important to realise that Amazon's bill of materials cost for its Kindle Fire will only go down as production ramps up. Even if the firm initially sells the device at a loss, the exposure that Amazon and its extensive range of products and services will get from the Kindle Fire will more than make up for a few dollars lost on the initial device - the classic Gillette 'give away the razor and sell the blades' marketing model.
Isuppli's figures show that companies can produce a tablet for $200, meaning even if they seek a 50 per cent gross profit margin they can significantly undercut Apple's devices. HP has shown that there is considerable demand for a cut price tablet and, given Amazon's success in the ebook reader market, few will bet against Amazon replicating its success with the Kindle Fire. µ
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