Amazon nearly breaks even on Fire's cost - iSuppli

Fri Nov 18, 2011 1:53pm EST

Related Topics

* Amazon held costs down aggressively

* LG supplies costliest component, the display

Nov 18 (Reuters) - Amazon.com Inc almost breaks even on every Kindle Fire tablet it makes and sells, IHS iSuppli estimated on Friday, underscoring the aggressiveness with which it tried to rein in the cost of a device that spearheads its foray into the tablet market.

The $199 Fire retails for less than half Apple Inc's cheapest iPad and is intended to be a "vending machine" for the music, videos and books it sells online.

The bill of materials, or total cost of components, adds up to $185.60. Once assembly and manufacturing is factored in, the cost of cranking out a Fire rises to $201.70, IHS iSuppli estimated.

Amazon's gadget has drawn positive reviews for its attractive price-tag and link to a thriving online retail network. But the no-frills device -- lacking a camera, microphone and other typical bells and whistles -- is deemed less versatile than the iPad and rival tablets such as Samsung Electronics Co Ltd's Galaxy.

Analysts expect 4 million to 6 million of the devices to move during the crucial holiday quarter.

"It's a good -- though not a great -- product and a very good value," Walt Mossberg wrote in the Wall Street Journal. But "the Fire's hardware is plain and clunky. It's a thick black box with zero style."

"I suspect the Fire will appeal to people on a budget and to those who envision using the iPad mainly to consume content."

The world's largest online retailer's thin profit margins have fallen further in recent quarters, but Wall Street has so far given CEO Jeff Bezos leeway to spend on future growth.

But some analysts are skeptical of Amazon's digital-media thrust, warning that consumers are unlikely to re-buy music or other media content to stock their Fires.

Amazon's video-streaming service also lags Netflix Inc's offering.

"A multibillion-dollar content investment to build an anti-Netflix streaming competitor is likely to be highly destructive to Amazon's cash-flow and margins," said Nomura's Brian Nowak in a research note on Friday.

In comparison, IHS iSuppli previously estimated Apple, whose base iPad starts at $499, makes average gross margins of about 50 percent on its tablet, with 20 percent to 40 percent being the industry average.

Amazon warned in October it could lose money in the fourth quarter as it spends heavily on the Fire and other projects that may not generate immediate returns.

The Fire shipped this week, ahead of a rival no-frills tablet from arch-foe Barnes and Noble Inc . The bookseller's device sells for $249, but has twice the memory.

According to IHS iSuppli, LG Display Co Ltd provides the single costliest component of the Fire -- the screen -- accounting for nearly half the total material cost.

Texas Instruments Inc provides the main processor, a key win for the company in its battle with Nvidia Corp and Qualcomm Inc to supply the brain-power of tablets.

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