IHS SAYS AMAZON LOSES LESS MONEY WITH KINDLE FIRE HD

(The following is a reformatted version of a press release
issued by IHS and received via electronic mail. The release was
confirmed by the sender.) 
IHS iSuppli News Flash: Amazon Loses Less Money with Kindle Fire
HD, Teardown Reveals 
This is an IHS iSuppli News Flash from information and analytics
provider IHS (NYSE: IHS) covering the IHS iSuppli Teardown
Analysis Service’s physical teardown of the low-end 7-inch
Kindle Fire HD media tablet from Amazon. 
The low-end Kindle Fire HD--with a 7-inch display, 16 gigabytes
of NAND flash and Wi-Fi wireless only--carries a bill of
materials (BOM) cost of $165.00. When the $9.00 manufacturing
cost is added in, the cost to produce this model of the Kindle
Fire HD increases to $174.00. 
Please note that this teardown assessment is preliminary in
nature, accounts only for hardware and manufacturing costs and
does not include additional expenses such as software,
licensing, royalties or other expenditures. 
At $174.00, the Kindle Fire HD costs slightly less to make than
its sales price of $199.00, strictly from a hardware and
manufacturing perspective and not including other costs. This is
an improvement from original Kindle Fire, which was priced the
same at $199.00, but was initially estimated to carry $201.70 in
BOM and manufacturing costs based on estimates made in November,
2011, meaning that Amazon took a loss on every media tablet
sale. 
“Amazon’s strategy with the Kindle Fire HD 7-inch tablet is not
really to make money on the hardware itself,” said Andrew
Rassweiler, senior principal analyst, teardown services, for
IHS. “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 the cost to make the tablet, 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, 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 $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 1,280 x 800 pixels, up from 1,024 x 600. 
The display and touchscreen subsystem costs a total of only
$64.00, accounting for 39 percent of the Kindle Fire HD’s total
BOM. In contrast, the original Kindle Fire’s display and
touchscreen carried a cost $87.00 and accounted for 47 percent
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 16GBytes, up from 8GBytes in
the previous version. DRAM content rose to 1GByte of LPDDR2+
memory, up from 512 megabytes. 
The total memory cost in the Kindle Fire HD amounts to $23.00,
or 14 percent of the BOM. Thus, despite a doubling in memory
content, the combined memory cost for the HD is only $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
$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 $15.00, down from $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 $2.50. This compares to
$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’ $199 entry point at retail.” 
Amazon is offering other versions of the Kindle Fire HD beyond
the base model dissected by the IHS iSuppli Teardown Analysis
Service. 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 16GByte and 32GByte 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 $70 price difference between the
16GByte and 32GByte 8.9-inch models. However, there’s only a $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
32GByte model. 
“The Kindle Fire HD 8.9-inch with LTE comes in 32GByte and
64GByte options. There is a $100 retail price difference between
the models. These price variations are interesting because the
cost of NAND flash is approaching $0.50 per GByte 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,
which supplied the display/touchscreen subsystem in the
individual tablet torn down by IHS. 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. 
For more information, please contact: 
Jonathan Cassell
Senior Manager, Editorial
jonathan.cassell@ihs.com
Direct: + 1 408 654 1714
Mobile: +1 408 921 3754 
Or 
IHS Media Relations
press@ihs.com
+1 303 305 8021 
(kgt)NY 
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