Amazon.com Inc’s new tablet computer costs $209.63 to make, IHSiSuppli estimated on Friday, highlighting how the e-commerce giant is taking a financial hit upfront to get the device into as many hands as possible.
Amazon’s billionaire Chief Executive Jeff Bezos unveiled the Kindle Fire at a lower-than-expected $199 price on Wednesday.
The launch sparked concern about a price war at the lower end of the tablet market, currently dominated by devices running on Google Inc’s Android operating system from companies such as Samsung Electronics Co Ltd, Motorola Mobility Holdings Inc and HTC Corp.
IHS iSuppli said the components that go into the Kindle Fire cost $191.65. Additional manufacturing expenses bring the total cost to $209.63.
Based on IHS iSuppli’s estimates, the company may lose just under $10 on each Fire it sells. But Amazon is hoping the device encourages users to buy more products and services from the company, making up for the upfront losses.
“The real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content. Rather, the Kindle Fire, 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,” IHS iSuppli said in a statement.
“When further costs outside of materials and manufacturing are added in — and the $199 price of the tablet is factored along with the expected sales of digital content per device — Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold,” the research firm added.