Amazon's Kindle 2 electronic reader retails for $359 but costs about half that amount to build, research group iSuppli Corp said on Wednesday.

In a dissection of the much talked-about device -- whose profitability and sales Amazon has never disclosed -- iSuppli found that the direct materials used in the Kindle cost $176.83.

Adding the costs of manufacturing and the battery, the amount rises to $185.49, the group found.

That sum does not include intellectual property costs, royalties and licensing fees and costs from software development, shipping and marketing.

Amazon did not immediately respond to a request for comment.

In February, the world's largest online retailer launched the second version of its Kindle, which allows users to read books, newspapers and blogs wirelessly on a device weighing less than a typical paperback.

The new digital book reader includes more storage and a slimmer silhouette than the first version, although the retail price did not change.

ISuppli performed what it called a virtual teardown, using insights from its staff to develop estimates of the Kindle's content and cost structure.

The most expensive component of the Kindle is its display module from E Ink Corp, followed by its wireless broadband module from Novatel Wireless Inc, iSuppli said.

(Reporting by Alexandria Sage; Editing by Tim Dobbyn)

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