We look at how Amazon has managed to pack so much into the relatively cheap Kindle Fire HD.
Amazon has cut the component and manufacturing costs for its latest Kindle Fire HD tablet to below its sales price. The earlier Kindle Fire not only had a lower resolution but was sold at a loss based on hardware alone. The company has also taken a lead from Apple's pricing policy for memory and RF upgrades beyond its base model to achieve better margins on these options.
The total bill of materials (BOM) for the entry-level Fire HD is $165 (£107.76 on a direct currency conversion but retailing at £159 via Amazon UK). Unit manufacturing is estimated by the IHS iSuppli Teardown Analysis Service at $9. This gives a total of $174 against a sales price of $199. The Fire had a comparable production cost of $201, but the same retail price.
These numbers do not include software, development and marketing costs, so Amazon is still almost certainly taking a loss on each unit sold after these are added. Nevertheless, the subsidy is significantly lower.
"Amazon's strategy with the Kindle Fire HD tablet is still not to make money on the hardware itself," says IHS senior principal analyst Andrew Rassweiler. "The idea is to create a product at a compelling price point in order to put Amazon content into consumers' hands."
Amazon has also managed to reduce the BOM of the HD, yet improve the specification compared to the original Fire.
"However, most of the improvements are incremental, allowing Amazon to exploit traditional industry economics to reduce costs or minimize increases in individual subsystems," says Rassweiler.
The biggest cost reduction has been achieved in the display, which accounts for a $23 decrease in the BOM. Like the original Kindle Fire, the HD sports a 7in display. However, the new model increases the resolution to 1,280x800 pixels from 1,024x600.
"The display and touchscreen subsystem costs $64, accounting for 39 per cent of the total BOM. In contrast, the original Fire's display and touchscreen cost $87 and accounted for 47 per cent of the BOM," says Rassweiler.
The entry-level memory configuration has also been doubled. NAND flash memory in the base-model HD has increased to 16GByte, up from 8GByte. DRAM content has risen to 1GByte of LPDDR2+ memory, up from 512Mbyte.
"The total memory cost in the Kindle Fire HD amounts to $23, or 14 per cent of the BOM. Thus, despite a doubling in memory content, the combined memory cost for the HD is only $1 higher than in the original version," Rassweiler says. "This is because of normal pricing reductions in the semiconductor market."
Cost-down dynamics also come into play for the battery. This is unchanged from the original model but now carries a cost of $15, down from $16.50.
Elsewhere, the charges related to upgrades and additions were also modest. For example, the core Texas Instruments processor is now the OMAP4460 rather than the OMAP4430. This raises the frequency to 1.5GHz from 1GHz but doing so has added less than $2 to the BOM.
Unlike the original model, the HD also has a camera module. However, with its low-resolution of 1 megapixel, it costs a negligible $2.50. This compares to $11 for the main 5-megapixel camera and secondary 1-megapixel 720p front-facing camera in the iPad mini.
Amazon is offering other versions of the Kindle Fire HD. There are two versions with 8.9in displays (one Wi-Fi, and another with a 4G Long Term Evolution connection). Both the 7in and 8.9in models also come with both 16GByte and 32GByte memories.
"Amazon has taken an interesting twist on the 'memory upgrade for dollars' approach that Apple pioneered," notes Rassweiler. "There is a $70 price difference between the 16GByte and 32GByte 8.9in Wi-Fi models. However, there's only a $50 gap for the same difference on the 7in model. That means Amazon makes a better incremental profit margin for the 8.9in 32GByte model."