Amazon to Sell Kindle Fire at a Loss, Still Make Nice Profit

Amazon.com Inc.'s recently announced 7-inch tablet -- Kindle Fire -- appears to have already stoked the flames of the tablet market, even before it has been released. However, reports suggest the Kindle Fire may not generate profits for the online retailer.

If these reports are to be believed, Amazon will suffer a loss of $10.63 for each tablet it sells. A teardown analysis of the cost of materials required to produce the Kindle Fire, as performed by iSuppli Research, indicates that the tablet's bill of materials (BOM) is $191.65. That figure will rise to $209.63, after including manufacturing expenses.

The point here is that since the Kindle Fire is priced at just $199, the loss cannot be avoided. In fact, earlier estimates of the loss were higher. Gene Munster, managing director and senior research analyst at Piper Jaffray, suggested Amazon may be selling the Kindle Fire at a loss of $50 per unit. However, common logic dictates that no company can really sell products at a loss. Therefore, the retailer must have a different strategy when it comes to pocketing the big bucks.

And there is a strategy in place, which should help Amazon make quite a bit of money from the Kindle Fire. It is hoped the tablet will stimulate the sales of the physical goods that Amazon offers.

Amazon doesn't make a substantial profit on sales of Kindle hardware and content such as e-books and music. Instead, the Seattle-based online-retail giant generates its profits on sales of shoes, diapers, and every other kind of physical product imaginable. Similar to Wal-Mart and other large brick-and-motor retailers, Amazon's content business is designed to lure in consumers to buy such everyday goods as well as other money-making items, according to the market-research firm iSuppli.

Following are the specifications of the Kindle Fire:

Display: 7 multi-touch display with in-plane switching (IPS) technology and anti-reflective treatment; 1024 x 600 pixel resolution at 169 ppi; 16 million colors.

Size: 7.5 x 4.7 x 0.45 (190 mm x 120 mm x 11.4 mm).

Weight: 14.6 ounces (413 grams).

On-device storage: 8GB. (That's enough for 80 apps, plus 10 movies or 800 songs or 6,000 books.)

Cloud storage: Free cloud storage for all Amazon content.

Battery life: Up to 8.0 hours of continuous reading or 7.5 hours of video playback, with wireless off. Battery life will vary based on wireless usage, such as Web browsing and downloading content.

Charge time: Fully charges in approximately 4.0 hours via included U.S. power adapter. Also supports charging from your computer via a USB connection.

Wi-Fi: Supports public and private Wi-Fi networks or hotspots that use the 802.11b, 802.11g, 802.11n, or 802.1X standards with support for WEP, WPA, and WPA2 security using password authentication; does not support connecting to ad-hoc (or peer-to-peer) Wi-Fi networks.

USB: USB 2.0 (micro-B connector).

Audio: 3.5 mm stereo audio jack, top-mounted stereo speakers.

Content formats: Kindle (AZW), TXT, PDF, unprotected MOBI, PRC natively, Audible (Audible Enhanced (AA, AAX)), DOC, DOCX, JPEG, GIF, PNG, BMP, non-DRM AAC, MP3, MIDI, OGG, WAV, MP4, VP8.

Warranty and service: 1-year limited warranty and service included. Optional 2-year Extended Warranty available for U.S. customers sold separately.

Also Read: Amazon's Second-Generation Kindle Fire Coming With 10-Inch Display?