Is Amazon losing $50 per Kindle Fire? I don't think so

Is Amazon losing $50 per Kindle Fire? I don't think so

Summary: Comparing the Kindle Fire to the RIM PlayBook, it seems unlikely that Amazon is losing $50 per device.

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According to Piper Jaffray's Gene Munster, Amazon is losing $50 every time it sells a Kindle Fire. But do the numbers add up.

Munster said this in a note sent out to clients shortly after Amazon unveiled the new Kindle tablet.

Apple is also monetizing the hardware upfront with a 30%+ gross margin on the iPad, whereas Amazon is likely losing about $50 per Kindle Fire.

$50. That's a lot of dough to make back per unit sold. But wait ... Munster doesn't have a teardown or anything to go by, so this could be a number pulled out of the air.

The best information to go on is the teardown of RIM's PlayBook tablet, which shares a common heritage with the Kindle Fire. So we can start there.

According to UBM TechInsights, a bill of materials for the PlayBook is $205. That's just the materials and nothing else - no R&D, no marketing, no assembly. Given that the Kindle Fire is a cut-down PlayBook, it's safe to assume that the bill of materials for the Fire is less than that of the PlayBook.

Patrick Moorhead, Corporate Vice President and Strategy and Corporate Fellow at AMD, takes $250 as a starting cost for the PlayBook (as opposed to the $205, factoring in additional costs) and subtracts from this features not present on the Kindle Fire. Here are his numbers:

Based on these numbers (and I like the feel of these numbers), the Kindle Fire is about $50 cheaper to produce than the PlayBook. While that doesn't allow for huge profits per tablet (like Apple enjoys with the iPad), it also gives the company more wriggle room, and makes a $50 loss per Fire seem unlikely.

I eagerly await a teardown of the Kindle Fire.

Topics: Tablets, Amazon, Apple, iPad, BlackBerry, Security

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16 comments
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  • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

    Even if they have a $50.00 loss. Don't you think they will make it up for online sales? Also, even if they have a loss on the table at first, releasing to the masses at a good price makes sense if they want to be able to enter the market where the iPad is the dominant player.
    reyonlines
  • But did not Amazon said they use IPS screen? It is much pricier than ...

    ... regular TN.

    Also, these $198 cost for Fire does not include distribution and assembly, so selling it for $199, Amazon may very well lose about $50 per device.

    (That said, this was never problem for Amazon, which uses this model for years; they compensate via selling content to users or, recently, via advertisements.)
    DDERSSS
  • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

    Adding up component prices does not make sense for a subsidized device.
    Kindle "with ads" is $40 cheaper than the version "without ads". Does it mean Amazon is losing $40 on every Kindle with ads? I don't think so.
    Kindle Fire is a way for Amazon to deliver their color catalog to your home and even have you pay for it.
    If you look at it this way, they make $199 on every delivery.
    Scrabbler
  • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

    So nuking bluetooth saved Amazon $1? Why in the world would they do that? The lack of bluetooth keyboard supoprt is one reason why, if I were in the market for a tablet, the Kindle Fire would not be my first choice.
    dsf3g
    • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

      @dsf3g
      Because Amazon is not trying to sell you an Android tablet at low price. There is no money in this business.
      Scrabbler
      • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

        @Scrabbler

        I realize that they're selling you a hardware portal to the Amazon Ecosystem, but it also does web browsing and e-mail. I can see how allowing users to hook up a keyboard makes it a more attractive device. I don't see how that negatively affects Amazon's startegy with the device. Clearly by pricing it at $199 Amazon's strategy is to get this thing in as many hands as possible.
        dsf3g
      • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

        @dsf3g
        Yes, they are clearly aiming for the low price. I don't think many would-be-iPad-owners will buy Fire instead for the reasons you outlined. But they are probably not the target market. Or maybe they will buy the Kindle as well.
        Scrabbler
  • Selling at a loss shows desperation.

    Selling at a loss shows desperation.
    Stan57
    • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

      @Stan57
      They can sell at a loss because they sell in volume.
      gregor1975
    • Re: Selling at a loss shows desperation.

      @Stan57 It would if it was the only thing they're selling. But it's not.
      ldo17
    • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

      @Stan57

      <i>"Selling at a loss shows desperation."</i>

      Uh, no. Cellular providers practice this same model by selling phones at a loss. Both Sony and Microsoft practice this with their game consoles.

      The question is, does Amazon have a clear monetization strategy? I think the answer to that is a very obvious yes. Amazon has <b>always</b> valued volume over margins.
      Rich Miles
  • US $ 97.78 - 108.8 according to Alibaba

    Do a search on Alibaba and there's a lot of 7" Android tablet, most under $120. Amazon most likely just bought in a stock design.

    e.g.

    Epad 7" TFT Touch Screen 512M VIA WM8650 800MHZ CPU 2G Android 2.2 OS Portable WIFI Tablet (Support GSM Call GSM900/1800)<br>FOB Price: US $ 97.78 - 108.8 / <br><br><a href="http://www.alibaba.com/product-gs/495562719/Epad_7_TFT_Touch_Screen_512M.html?s=p" target="_blank" rel="nofollow">http://www.alibaba.com/product-gs/495562719/Epad_7_TFT_Touch_Screen_512M.html?s=p</a><br><br>They probably just buy them in from China.
    guihombre
  • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

    Thanks for great explanation. I think it's a clever strategy to make profit.
    oyunlar
  • joke

    B&N is coming out with Nook Color 2 shortly that will have Netflix app among others. Kindle Fire is no more media tablet than even current Nook Color, most specs are the same, just a bit faster. Kindle Fire doesn't have microSD slot that Nook Color has thus it is stuck with 6 GB usable internal storage unlike Nook Color that can get up to 32 GB card in. Nook Color still has the best on the market anti-glare coated screen that is better for reading/viewing outside. Also, current e-Ink Nook Simpletouch is still better designed than even the new Kindle Touch with battery lasting two months with ONE hour reading with Wi-Fi off thus it's still twice as long as new Kindle's two months with HALF and hour a day with Wi-Fi off. It looks like Kindle didn't get any battery improvement in the new model. More, Kindle Touch still flashes black on each page turn while Nook Touch reduces the flashing by 80%. If you walk in with the Nook to Barnes & Noble store, you???re allowed to read ANY available eBook for free while in the store via free provided in the store Wi-Fi.
    Also, the prices that you hear around for the new Kindles are all for models that force you to look at advertisements. Normal units cost $30-50 more. For example, Kindle Touch goes for $139 that is the same as Nook Touch while Kindle Touch 3G goes for $189.
    eco733
  • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

    http://www.top4biz.com
    linbbee
  • RE: Is Amazon losing $50 per Kindle Fire? I don't think so

    http://dv.gd/gjx
    llidhiehn