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Amazon Tablet Cost Exceeds Retail Price: IHS

El Segundo, Calif. – Amazon will retail its Kindle Fire tablet at $199 even though IHS iSuppli estimates that it costs $209.63 to build the device.

pricing underscores Amazon’s focus on using its e-readers and tablet to promote the online sale of its physical good,
the research company said.

A preliminary estimate conducted by the IHS
iSuppli Teardown Analysis Service
places Kindle Fire’s bill of materials
(BOM) cost at $191.65. With the addition of manufacturing expenses, the total
cost to produce the Kindle Fire hits $209.63, IHS said. (See table.) LINK TO 21AMAZONTAB11.xlsx)

With the
expected lifetime sales of digital content per device, however, Amazon will likely
generate a razor-thin marginal profit of $10 on each Kindle Fire sold, IHS
continued, given that Amazon sells content at a loss. The real value of the
tablet, as with the Kindle e-readers, is to use content “to get shoppers in the
door” and then sell them all sorts of other goods, IHS said. “The real benefit
of the Kindle Fire to Amazon will not be in selling hardware or digital content.”

 The tablet
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.”