Amazon beat the street Thursday with a 24% gain in earnings and operating margins well ahead of expectations but true to form, the company broke out little detail on its high buzz, in-house, product, the Kindle.
Kindle is a tiny part of Amazon’s larger retail and services businesses and at this point, the company is choosing to keep the product’s performance metrics under wraps. Fortunately, for those looking for color, iSuppli recently completed a tear-down of the eBook reader. The results can’t shine a light on sales totals or consumer demand but they do give a hint at the margins Kindle’s making on hardware sales.
In total, iSuppli analysts estimated the Kindle 2.0 costs $185.49 to build compared to its $359 retail price point. That figure includes materials and manufacturing costs but not licensing or royalty expense, software related costs or sales and marketing charges.
The total material cost was estimated at $176.83 per unit. E-ink’s display and Novatel’s wireless package ate up more than half of that at a cost of $60 and $39.50 each, respectively. Other key components including the battery, circuitry, enclosure, processors and Samsung flash memory were priced between $2 and $10 a piece.
iSuppli guessed manufacturing conversion costs were $8.66.
So what does Kindle cost Amazon out the door? It’s realistic to guess costs are in the range of $210 to $250 per unit; likely toward the higher side of the range. That would include sales and marketing, and also an upfront sum, per unit, to cover wireless fees for the device’s included Whispernet (Sprint EVDO) data service. The assumption is that part of the data service is paid upfront and another portion of that data delivery cost is built in to each individual media download.
If that guess is in the ballpark, at $210, Amazon’s gross margin for the device would work out to be a very healthy 41.5%. At $225, the haul would be 37.3% and at $250, it would be approximately 30.4%.
For Amazon, that’s a very good result especially considering the Kindle is more of a means to an end, than an end itself. That is – Amazon seems to have positioned the Kindle as a platform more than a product. In contrast to Apple, which has used its iTunes store to help support and sell iPods, Amazon is approaching from the opposite shore; using device sales to support store operations instead of the other way around.
Kindle could have been a loss leader, the razor for the razor blades, instead, if these numbers are accurate, it would appear to be paying for itself.
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