The low-end 7-inch Kindle Fire HD that has 16GB of NAND flash and Wi-Fi wireless carries a bill of materials (BOM) cost of US$165.00, according to research firm IHS. When the US$9.00 manufacturing cost is added in, the cost to produce the model increases to US$174.00 in terms of the hardware and manufacturing costs but not for additional expenses such as software, licensing, royalties or other expenditures.
At US$174.00, the Kindle Fire HD costs slightly less to make than its sales price of US$199.00, strictly from a hardware and manufacturing perspective. This is an improvement from the original Kindle Fire, which was priced the same at US$199.00, but was initially estimated to carry US$201.70 in BOM and manufacturing costs, said IHS.
"Amazon's strategy with the Kindle Fire HD 7-inch tablet is not really to make money on the hardware itself," said researcher at IHS Andrew Rassweiler. "Rather, the idea is to create a product at a compelling price point and then get a lot of consumer traction in order to put Amazon content and the Amazon online store into consumers' hands. However, for its second generation Kindle Fire, Amazon has reduced costs to make the tablet, such as by cutting the cost of the hardware subsidy that the company must put out to pursue its strategy."
Amazon managed to reduce the BOM cost of the HD model, despite improving the specifications compared to the original Kindle Fire. However, most of the improvements are incremental, allowing Amazon to reduce costs or minimize increases in individual subsystems.
The biggest area of cost reduction was in the display, accounting for a US$23.00 decrease in the BOM compared to the first Kindle Fire. Like the original Kindle Fire, the HD sports a 7-inch display. However, the new model increases the resolution to 1280 by 800 pixels, up from 1024 by 600.
The display and touch screen subsystem costs a total of only US$64.00, accounting for 39% of the Kindle Fire HD's total BOM. In contrast, the original Kindle Fire's display and touch screen carries a cost of US$87.00 and accounted for 47% of the product's BOM, based on pricing from November 2011.
The memory configurations in the Fire HD also doubled compared to the original Kindle Fire. The amount of NAND flash memory in the base-model HD has increased to 16GB, up from 8GB in the previous version. DRAM content rose to 1G of LPDDR2+ memory, up from 512MB.
The total memory cost in the Kindle Fire HD amounts to US$23.00, or 14% of the BOM. Thus, despite a doubling in memory content, the combined memory cost for the HD is only US$1.00 higher than in the original version of the Fire. This is because of normal pricing reductions that occur in the semiconductor market.
There's also an upgrade of the core Texas Instruments processor from the OMAP4430 to the OMAP4460, which raises the frequency to 1.5GHz, up from 1GHz. This incurred an increase of less than US$2.00 in BOM cost compared to the first Kindle Fire.
The battery was unchanged from the original model. However, because of normal electronics industry learning-curve dynamics, the cost of the battery declined to US$15.00, down from US$16.50.
The HD also added a camera module, which was absent from the original model. However, with a low resolution of just 1-megapixel, the camera costs a negligible US$2.50. This compares to US$11.00 for the 5-megapixel camera, plus a secondary 1-megapixel 720p front-facing camera, in the iPad mini.
"Overall these are all progressive incremental changes, with nothing revolutionary added," Rassweiler said. "However, these features allow Amazon to offer a better feature set for less cost than the last version of the Kindle Fire, while maintaining the 'magical' US$199 entry point at retail."
Amazon is offering other versions of the Kindle Fire HD. The company also is selling two versions with 8.9-inch displays-one with Wi-Fi, and another with a 4G Long Term Evolution (LTE) wireless connection. Both the 7-inch and 8.9-inch models offer 16GB and 32GB memory options.
"Amazon has taken an interesting twist on the 'memory upgrade for dollars' approach that Apple pioneered with the iPad line," Rassweiler said. "There is a US$70 price difference between the 16G and 32GB 8.9-inch models. However, there's only a US$50 gap for the same difference on the 7-inch model. That means Amazon makes a better incremental profit margin for the 8.9-inch 32GB model.
"The Kindle Fire HD 8.9-inch with LTE comes in 32GB and 64GB options. There is a US$100 retail price difference between the models. These price variations are interesting because the cost of NAND flash is approaching US$0.50 per GB in the market for commodity NAND flash, making these optional upgrades highly profitable for Amazon."
Major design winners in the Kindle Fire HD include LG Display. However, IHS believes that Panasonic is also a source for the subsystem. Despite the cost reduction, the display remains the most expensive section of the Kindle Fire HD.
Samsung contributed the NAND flash, while SK Hynix was the source of the DRAM. As mentioned previously, Texas Instruments supplied the processor, and the company also provided the HDMI component IC.
Article translated by Alex Wolfgram
