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eric perlberg
LIke others I feel this tablet is more oriented as a distribution and media ...
ReneCardenas
I agree with the premise that despite the missing features presnet in higher end ...
Kindle Fire profitable at estimated $150 BoM
Rick Merritt
9/28/2011 5:43 PM EDT
SAN JOSE, Calif. – Amazon will make a profit on hardware sales of its Kindle Fire, but probably only a third to a quarter as much as the Apple iPad and Playbook, according to estimates from UBM TechInsights that peg new tablet's bill of materials at $150.
With those costs, Amazon will make an estimated $49 profit on sales of its tablet hardware. By contrast, UBM TechInsights estimates Apple and RIM make $150 to $200 in gross profits on their tablets.
"This can be viewed as a major blow to all Android tablet manufacturers who really have no way to compete since the channel mark-up would require companies put their tablets at or below cost to beat the Kindle Fire price--and they still all lack the content that the Amazon storefront has," said Jeffrey Brown, vice president of business intelligence at UBM TechInsights, a division of UBM LLC, the publisher of EE Times.
Before the launch of the Kindle Fire,
reports circulated that Amazon was rushing the product to market and, as
such, taking its design cues mainly from the 7-inch Playbook, already
the subject of teardown reports. UBM TechInsights estimated the bill of materials for the Playbook at $170.
"The Amazon Kindle Fire looks similar in fit and form to the Blackberry Playbook, but it’s been stripped of its bells and whistles to help bring down the price," said Brown.
"We expect that the Kindle Fire's dual-core processor will be the TI OMAP 4430, just like the Playbook, it will use similar flash memory from SanDisk and Toshiba and we don’t expect the similarities to stop there," he said.
The Kindle Fire cuts $10.50 from the Playbook costs by leaving out 5 and 3 MPixel front- and rear-facing cameras. Amazon saves $8 by using 8 Gbytes less memory than RIM, and another $1.50 by cutting out Bluetooth, GPS and microphone support, UBM TechInsights said.
"The real benefit for Amazon in entering the tablet space is the advantage of a direct, established, sales model on Amazon.com versus the rest of its Android competitors," said Brown. "They also have name recognition and a wealth of content behind the device which puts them on a level with Apple," Brown said.
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JAK620
9/28/2011 7:03 PM EDT
The hardware profitability may be low but I think that key is that the tablet brings the Amazon store-front, which we usually access on a PC, to the tablet screen. That should be the main target of profit instead of the hardware.
Amazon is not directly competing w/ Apple on the hardware-feature front but more on its price and Amazon's broad service and catalog.
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Neo1
9/28/2011 10:44 PM EDT
Now imagine if they start a movie/music subscriptiion like Apple does then they would give stiff competition. Hadrware is the key enabler but the profits lie in software services. So they appear to have got the equation right.
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the lavender fan
9/29/2011 7:56 PM EDT
Music subscription makes sense now, but movie subscription doesn't look appealing yet with the 7" LCD Kindle Fire.
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yalanand
10/2/2011 11:39 AM EDT
@Neo1 good point. Do you think kindle will affect the profitability of companies like Netflix who primarily benefit from selling movies online.
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Sanjib.Acharya
9/28/2011 11:08 PM EDT
I think Amazon is betting on the volume for Kindle fire. With the price tag set at $199, it is expected to be sold in large volume. People who are hesitate at shelling out $500 on an iPad but need a handy tab (like me :)), will definitely think about buying it. Though I don't think iPad is going to give-up market share to Kindle Fire as the features doesn't compare "apple to apple" and the people who wants to get an iPad will still buy it. Kindle Fire seems to have a good potential to dominate the low cost markets.
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markhahn
9/28/2011 11:17 PM EDT
even if Amazon does nothing but extend the Kindle market, they've got a huge winner. I think the real question is whether they'll try to discourage the modders...
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wilber_xbox
9/29/2011 9:14 AM EDT
well, i calculate the profit margin other way: Amazon is making 50USD for 150USD i.e. 1/3rd profit. Now if Apple is making $200 for $300 then its 2/3rd profit....so kindle is making half the profit of what Apple is making...Dollar of Dollar. Remember that Apple's products are usually high profit margin.
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yalanand
10/2/2011 11:38 AM EDT
@Himanshu, you are right Kindle is making half the profit but look at the sales volume. More and more people will buy kindle because its available at low price.Moreover it would be easy for amazon to market its tablet.
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elctrnx_lyf
9/29/2011 2:39 PM EDT
does this tablet is coming without camera and other wireless interfaces or it is designed with some lower features. Looking forward to see the complete tear down and comparision with play book. Certaily ti is gaining a good traction now.
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richard.neveau
9/29/2011 6:37 PM EDT
I always thought someone was losing money on TI/Digikey PandaBoard and BeagleBoard XM but looks like with no LCD even those two boards might have some (tiny) margin.
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Silicon_Smith
9/30/2011 1:53 PM EDT
I agree. And I doubt if beagle and panda are an actual offering from TI. Makes it impossible for them to have a subsidised model.
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eewiz
9/30/2011 12:17 AM EDT
Most people who buy fire will subscribe to Amazon Prime at 79$ for the content. And those who prime subscription shop more (regular stuff) compared to people without prime. Another way amazon has justified the low upfront cost.
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peralta_mike
9/30/2011 12:05 PM EDT
I currently have a kindle. (old keyboard type = $139 Kindle).
Since July 2011 I have bought roughly about 100 books at 1 to 8 dollars each. Say average is about $2/book (most books I buy are either $0.99 or $1.99 but some up to $8 when I really want the e-book). If I'm an average Kindle and e-book buyer then this translates into approximately $140 that Amazon has made from me on e-books alone (so far). (On e-books Amazon makes 65% and 35% is royalty to the authors of the e-books.)
So Amazon will be making much more on the contents (e-books, mp3, movies, magazines, etc.) than on the devices themselves.
I have to admit, Jeff is a business genius.
God willing, I plan on getting a Kindle Touch for Christmas 2011.
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Bill Teasley
9/30/2011 1:01 PM EDT
If the dollars in this article are correct, the profit margin for Apple is ~30% and for Amazon is %25. That's not as much difference as the article implies, nor unmanageable. The real story is that Amazon has done a fine job of creating a small, entry level tablet with just the right mix of features. Now they can price it at $199 so it's a practical gift. $499 is too steep to drive the same volume. Any other manufacturer could have done the same, but they don't have the content - that's the biggest part of the story.
No magic here, just good engineering and good leveraging of core value.
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Silicon_Smith
9/30/2011 1:57 PM EDT
Totally agree with how Kindle leveraging it's core strength is a winner for them. That is not so true for all the other players trying to venture into the tablet market.
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ReneCardenas
10/2/2011 11:21 PM EDT
I agree with the premise that despite the missing features presnet in higher end tablets, this fire will burn hotter for the lower entry cost, there is some genius in Bezos despite the haters. Great to see this presure push others to improve on their pricing the higher end tablets, to remain viable in this though market enviroment.
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eric perlberg
10/3/2011 8:24 AM EDT
LIke others I feel this tablet is more oriented as a distribution and media consumption device for Amazon products than a front on competition to Apple's iPad, It does create massive problems for anyone else making an Android based tablet.
Amazon may well amortise the cost of this tablet over 18 months or longer (a lifetime for mobile products) because it will essentially continue to perform its primary functions as portal to Amazon.
One could say that a customer buying one of these is basically subsidising Amazon's revolution in product distribution.
It's clear that by running only smartphone apps its not really designed to run sophisticated tablet apps and I can't see Amazon trying to get Android 3 or 4 onto their tablets. More likely is they buy WebOS and take control of the OS themselves. Anyway good on Amazon for innovation and disrupting the now boring Android tablet market.
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