Amazon Kindle HD closes the tablet profit gap

Posted by Trent Nouveau

Amazon's entry-level $199 Kindle Fire HD carries a bill of materials (BOM) of $165, in addition to a $9 manufacturing fee. 

As IHS iSuppli analyst Andrew Rassweiler notes, the Kindle Fire HD costs slightly less to make than its sales price of $199.00 - albeit strictly from a hardware and manufacturing perspective - and not including other costs.

"This is an improvement from original Kindle Fire, which was priced the same at $199.00, but was initially estimated to carry $201.70 in BOM and manufacturing costs based on estimates made in November, 2011, meaning that Amazon took a loss on every media tablet sale," Rassweiler explained.

"[Remember], Amazon’s strategy with the Kindle Fire HD 7-inch tablet is not really to make money on the hardware itself. Rather, the idea is to create a product at a compelling price point and then get a lot of consumer traction in order to put Amazon content and the Amazon online store into consumers’ hands."

Nevertheless, Amazon managed to reduce the BOM cost of the HD, despite improving the specifications compared to the original Kindle Fire. However, says  Rassweiler, most of the improvements are incremental, allowing Amazon to reduce costs or minimize increases in individual subsystems.

For example, the most signfiicant cost reduction revolves around the display, accounting for a $23.00 decrease in the BOM compared to the first Kindle Fire. Like the original Kindle Fire, the HD boasts a 7-inch display. However, the new model bolsters the resolution to a sweet 1,280 x 800 pixels, up from 1,024 x 600.

In addition, the display and touchscreen subsystem costs a total of only $64.00, accounting for 39 percent of the Kindle Fire HD’s total BOM. In contrast, the original Kindle Fire’s display and touchscreen carried a cost $87.00 and accounted for 47 percent of the product's BOM, based on pricing from November 2011.

The memory configurations in the Fire HD also doubled compared to the original Kindle Fire. The amount of NAND flash memory in the base-model HD has increased to 16GBytes, up from 8GBytes in the previous version. DRAM content rose to 1GByte of LPDDR2+ memory, up from 512 megabytes.

Nevertheless, the total memory cost in the Kindle Fire HD amounts to $23.00, or 14 percent of the BOM. Thus, despite a doubling in memory content, the combined memory cost for the HD is only $1.00 higher than in the original version of the Fire. This is because of normal pricing reductions that occur in the semiconductor market.

There’s also an upgrade of the core Texas Instruments processor from the OMAP4430 to the OMAP4460, which raises the frequency to 1.5GHz, up from 1GHz, yet  only incurred an increase of less than $2.00 in BOM cost compared to the first Kindle Fire.

And last, but certainly not least, the HD also added a camera module, which was conspicuously absent from the original model. However, with a low resolution of just 1 megapixel, the camera costs a negligible $2.50. This compares to $11.00 for the 5-megapixel camera, plus a secondary 1-megapixel 720p front-facing camera, in the iPad mini.

“Overall these are all progressive incremental changes, with nothing revolutionary added...[Yet], these features allow Amazon to offer a better feature set for less cost than the last version of the Kindle Fire, while maintaining the ‘magical’ $199 entry point at retail," he added.