Nov. 18, 2011 at 10:17 AM ET
Many consider the Kindle Fire to be a decent deal at $199 — and how could they not? After all, the 7-inch Android tablet is likely to be selling for less than it costs Amazon to make it.
According to a report by the IHS iSuppli Teardown Analysis Service, it is estimated to cost Amazon $201.70 to manufacture each Kindle Fire.
This cost was determined after a Kindle Fire was taken apart and its parts were analyzed to create a list of components — better known as a bill of materials (BOM). Once that list was complete, the expenses were added up.
According to IHS, the Kinde Fire carries an estimated BOM cost of $185.60. And once manufacturing services are added, that number jumps to the previously mentioned total of $201.70. (IHS notes that this amount "does not include additional expenses such as software, licensing, royalties or other expenditures.")
So why is Amazon selling a product for less than it costs to make? Andrew Rassweiler, senior director of teardown services at IHS, has an explanation:
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. This is a similar business model to wireless companies 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. However, they expect to more than make up for that loss with a two-year service contract.
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