According to research company – IHS iSuppli, Amazon’s new Kindle Fire tablet that started shipping this week is reportedly selling for almost three dollars less than it costs to manufacture. The Kindle Fire, which retails for $199 in US, apparently costs near $202 ($201.70 to be exact) to manufacture. For arriving at this manufacturing cost, the research company has analysed all the major components used and their prices. The costs of development, marketing or packaging, have not been calculated in the arrived cost of production. The Seattle based retailer – Amazon– has projected to sell between 3 million and 5 million its newly launched tablet before the close of the year 2011.
At $201.70, the Kindle Fire is cheaper to manufacture than the current bestselling tablet on the market, Apple’s iPad 2, which has a production cost of about $326. But Apple sells its base iPad 2 at a profit-making price of $499. Amazon has kept the cost of the tablet low compared to Apple’ s iPad and similar tablets by making it smaller.The screen is half the size of that for the iPad, the amount of memory is low and it does not have a camera or microphone.
But the question arises, why Amazon is selling its product less than its production cost? There are many convincing reasons to do so. The online retailer is initially selling the tablet at a loss which they hope to cover through sales of books and films for the device. Users will be able to access more than 18 million films, television shows, songs, applications, games, books and magazines via the Amazon online webstore. Moreover, manufacturing costs of new gadgets usually come down as chips become cheaper, so Amazon should eventually make a profit at the same price.
Amazon CEO, Jeff Bezos said in September that the company’s goal was to make a small profit from the hardware. But he added that as a retail company, Amazon was willing to live with a smaller margin than most electronics companies would.
With so many tablet coming in the market, it is a game of numbers now and the those companies which have good content available with them, can compromise with hardware prices to get their profit margins from contents. Another success story could be Nook tablet, which will also derive strength from its content.