iSuppli: $359 Kindle 2 costs $185 to build, Whispernet says shhh
By Thomas Ricker 
posted Apr 22nd 2009 8:42AM
posted Apr 22nd 2009 8:42AM
Amazon's Kindle 2 Costs $185.49 to Build, iSuppli Teardown Reveals
El Segundo, Calif., April. 22, 2009-Amazon.com Inc.'s new Kindle 2 eBook carries $185.49 in materials and manufacturing costs, according to a dissection conducted by iSuppli Corp.'s Teardown Analysis Service.
The direct material cost of the Kindle 2, consisting of all parts used to make the product, amounts to $176.83. When adding in the conversion costs-i.e., manufacturing expenses and the battery-the total rises by $8.66 to $185.49.
The total materials and manufacturing costs reported in iSuppli's teardown analysis of the Kindle 2 reflect only the costs for direct materials, manufacturing and basic tests. Not included in this analysis are costs above and beyond the material manufacturing of the core device itself-i.e., the cost of intellectual property, royalties and licensing fees; those not already included into the per component price-software, software loading and test, shipping, logistics marketing; and other channel costs. These costs are not included because teardowns cannot reveal this type of information.
The combined manufacturing and materials costs represent 51 percent of the Kindle 2's $359 retail price.
The attached table presents a summary of the major cost drivers for the Kindle 2.
Black ink for E Ink
iSuppli estimates that $60, or 41.5 percent of the materials cost of the Kindle 2, is accounted for by the E Ink Corp. display module, which represents the centerpiece of the product.
"The showcase feature of the Kindle is its E-Ink display, which not only is easy on the eyes, but also employs electrophoretic bistable technology that allows it to show an image even when it's not drawing power," said Andrew Rassweiler, director and principal analyst, teardown services, for iSuppli.
"The new version of the E Ink display in the Kindle 2 supports 16-level grayscale images, rather than the 4-level version used in the previous-generation hardware. This makes the Kindle 2's display look like a printed page."
Rassweiler noted that the bistable display for the Kindle 2 obtained by iSuppli continues to display the warning message "Critical Battery" even after the product was completely dissembled for the teardown. With no power or electronic control to refresh the image, the display will be frozen in this state forever.
Kindle 2 takes turnkey wireless approach
After the display, the next largest cost driver in the Kindle 2 is the wireless broadband module, provided by Novatel Wireless Inc. Priced at $39.50, the module accounts for 27.3 percent of the materials cost of the Kindle 2. The module supports the CDMA2000 1X EV-DO Rev A air standard.
In the first-generation Kindle, the wireless functionality was provided by an integrated chipset that was an integral part of the main printed circuit board. In the second-generation Kindle, the wireless functionality has been divorced from the core design and instead uses Novatel's turnkey module.
The use of a standard module like this makes the Kindle 2 easier to design. Furthermore, since Novatel manufactures many different wireless modules, it buys components in high volume, which represents leverage it can use to negotiate prices down with suppliers such as Qualcomm Inc., whose device represents the integrated circuit core of the wireless module.
Qualcomm Inc.'s MSM6801A single-chip baseband processor is priced at $13.18, iSuppli estimates.
The wireless connection runs behind the scenes, providing an always-on invisible link to Amazon's library of electronic book content.
Another key element of the Kindle is Freescale Semiconductor Inc.'s MCIMX31LVKN5C multimedia application processor, priced at $8.64. The Freescale processor is based on an ARM11 microcontroller core, which runs at a clock speed of 532MHz. Freescale also contributed its MC13783VK5 audio circuit and power-management IC.
I love things like employee salaries, R&D, real property (rent ain't cheap buddy), and many other cost occurrences are conveniently ignored. OMG teh Amazon is raping profits on Kindlez!!
I was looking for overhead costs but didn't see it.
They're not included because unless companies are particularly forthcoming with their overheads (which generally they are not) it's impossible to make anything but a guess. Things like this just serve to interest people and show the costs of the actual hardware, to me $180 sounds about right for the hardware of the kindle (50% of final cost), it's only things like Apples new shuffle that cost $20 to build and cost $80 at retail (25% of final cost) that start to make less sense and make you wonder.
But Gnormie, components are only part of what the final price (before profit) of a product should be. Let us not forget R and D, plus of course the cost of employing people to write software.
Different companies will have different cost structures - some will pay more for components, others will pay more (relatively) for R and D, and some will pay more for software engineers.
So you cannot really say, components 50% of final price, OK; but components 25% of final price, not OK ... because it is feasible that Apple is paying much more than Amazon for software engineers, or R and D. Both of those other things also speak to how good a device is (like quality of components do) and add value.
Basically, you cannot judge a company's profit from a device by subtracting the component costs from the final price (because this ignores all the other costs involved with developing a product), so I think it is unfair to suggest that Apple is ripping people off, based only on an assessment of component costs.
I figure we were all kinda expecting this, don't forget isuppli's teardowns of Apple products..
Isn't that the point? make it cheap, sell it, make profit.
Save your money kids and read a real book or go to alt.binaries.e-books...shhhhhh. :)
Well. why sell at a lower price if, at that price, they couldn't keep up with demand.
Just sayin'
Absolutely. iSuppli have clearly been full of **** for a long time now – no company reports the kind of profits iSuppli claim they should be showing.
I, for one, am shocked that someone out there is making a profit! What a catch Engadget, simply astounding!
Wow. Just wow. This is a breakdown of the cost of COMPONENTS. Is anyone really shocked that they wouldn't include the labour/development/etc? Where did anyone say this was a ripoff? You are getting offended at a statement that wasn't made! The difference between component cost and retail price is quite reasonable. The article merely shows that the markup is in line with other electronic devices. ( - the ipod shuffle)
I for one enjoy these articles, and think that it's okay to show the cost of the components.
No one's saying explicitly it's a ripoff, but the breathlessness with which it's explained that the price of the parts is far lower than the retail price of the whole certainly suggests that. It's like the outrage of paying $50 for a nice steak at Morton's that would cost $8 at the grocery store
Of course, Amazon has R&D costs and others that aren't just components. Same for Apple and others.
If you think the price is too high, don't buy.
Considering how inaccurate they are with Apple's teardowns (Apple posts their margins publicly), why should I believe this cost???
These people should try to teardown the price of perscription drugs and let the people know where they are really getting ripped off...apparently they think R+D is free.
I think a teardown of Monster cable costs would be much more fun.
Are these any different than Apple/MSFT/etc mark ups?
"The estimate does not include the costs related to marketing, distribution, class-actions, or the pain you feel at having learned the true definition of free."
Or the cost of R&D.
Personally, it's too expensive for me to even consider it. Not to mention the benefits aren't really there for me either. Now if my textbooks where on there, and it was color then sign me up!
And thats just what else Amazon has to factor into the price. Not everyone is going to buy one, so to actually make meaningful profit the margin is inflated to overcome low production of a somewhat expensive item. When you add all those things into, I'm honestly surprised it isn't $500.
Where on the other hand you have Apple/Nintendo products that are high demand, high production items with similar levels of mark-up.
Yes, it is different. Apple's component costs on the newest iPod Shuffle are only 28% of the retail cost. ( http://www.businessweek.com/technology/content/apr2009/tc20090410_507831.htm )
Component costs are only part of making a product - you are trying to suggest that Apple is ripping people off, but you are ignoring R and D and the cost of software development.
Compare these hypothetical scenarios: Apple spends 28% (of retail) on components, 12% on R and D, and 20% on software development. Amazon spends 50% on components, 5% on R and D, and 5% on software development.
BOTH companies then have 40% to distribute between marketing and profit. But if you just look at only one cost (components) alone, it might look like Apple is marking up twice what Amazon is, when they probably are not.
Lesson to be learnt: component costs alone to not encompass the totality of costs involved with developing, manufacturing and selling a product, and are therefore *useless* in determining a company's profit margin.
I wonder what's driving up the cost of competitors that don't have the whispernet. Sony's MSRP is only about $60 lower than the Kindle. Maybe they're all still testing the patience of early adopters.
Sony doesn't have the imminent revenue of media sales that Amazon has, so they have to put more of their profit margin into the purchase price. It's the same reason the PS3 was cheaper than standalone Blu-Ray players when it came out. Sony was banking on game sales and Blu-Ray sales to increase revenue.
Ummm... Really? You don't think they're covering the "lifetime" wireless bandwidth costs with $10 fees for transmitting text documents? That's like zippy overhead compared to buying, packing and shipping a physical product to your door. Yeah, the hardware is probably overpriced, but the real money is in locking you to their store.
10 Dollars? hah...10 CENTS
$160 = about 3-5 of mobile broadband for a laptop, or around 6-8 months of a standard 3G data plan, depending on which carrier you go with.
For that markup, you get lifetime access to a 3G network with no stated caps, on a device that can download eBook content and (more importantly) can display websites. XKCD totally called this one - the Kindle is the ultimate Wikipedia machine - a one-time purchase grants you unlimited access for the life of the device to a concise source of the world's information, kinda like the Encyclopaedia Britannica, only small enough to fit in a purse or a decent sized jacket pocket (at least, if your jacket is a ScottEVest...). Not to mention Andy Ihnatko's favorite use, Google Reader. I don't own one, but I can totally see the value proposition there. If that takes a $160 markup on the unit's manufacturing price, so be it.
My advice - use your uber-Wiki powers to win bar bets, make friends, and impress (easily impressible) women.
Wow - a company making a profit? HOW DARE THEY! Please, what's with these threads? If the costs are so cheap and you can build it for that much - go, build it yourself then and STFU. Perhaps the people breaking these things down forget about all the other stuff that goes into these things like other posters here have said. R&D, Salary, Advertising, Broadband Access, etc etc. Noting wrong with making a profit. Nothing at all.
Now, if the kindle was sold for $899 - that would be an entirely different story. However, it's not.
Shouldn't the cost of Whispernet be added on to the price of the books instead of the price of the device? I'm sure that Amazon isn't giving everybody a free unlimited monthly data plan, they're probably paying by the megabyte, so they only have to pony up when you buy a book.
The Kindle also has a basic web browser and you can access their site without actually buying a book.
Hey Ricker, no link to the iSuppli article?
I read somewhere that a human being is made up of a couple of dollars worth of chemicals.
I.E. I am kinda having a hard time seeing the point here...
Considering that in Economics, you learn about keystonin the price (doubling the price from that of the cost of production/manufacturing), this is actually a great deal :). $185 x 2 = $370. So considering its only $359 is amazing. Usually, its double and an increase (cough) Apple and their tax (cough).
Keystone pricing*
(cough) component costs are only part of a device's manufacturing and development cost (cough) you cannot infer profit margins when knowing at only part of the cost (cough) so this is hardly evidence to support the "Apple tax" theory (cough) and I don't think you've actually studied Economics with a capital E (cough)
Amazon should get rid of the expensive 3G modem (let me just download the books through my computer) and buy E Ink Inc or do SOMETHING to reduce the cost of the display and then sell this thing for a fraction of the price, then ebooks would REALLY take off. Just a thought.
Buying eInk inc. would potentially kill the competition. There would be little reason for them to reduce the price then.
A lot of good a blank 8-layer PCB and a Multimedia Application Processor with no code are gonna do you on your DIY $185 Kindle 2.
Who cares ? you think a Ferrari Cost $250,000 to build ??
Agreed. Who cares what it costs to make or how much markup there is.
If you think it's too expensive, don't buy it, end of story.
Right, BAH, who really cares? I freakin love my Kindle, I freakin love my iPod. Let them make loads of money and keep pumping out new products for me to love!
It is never that easy, you should add up the transportation, storage, fulfillment and marketing costs.
Additionally you need to pay salaries to 1.hardware development team , 2. device software development team , 3.server side software team 4. IT team to support server side software, 5. Project Managers , 6. employees involved in the supply chain.
For each employee , they also have non-salary costs of employing all those people ( office equipment and space, recruitment, training).
100.000
WOW... OBVIOUSLY Amazon and Apple should be less GREEDY in these troubled economic times and sell a box of parts so each consumer could assemble the device, write the software and buy EVDO service from Sprint on their own!!!
Long-live the HEATH KIT business model !!!
The costs do not appear to include things like contract mfg and the CM's profit (probably another $40-50), warranty accounting (maybe 2% or $7), or possibly royalties for the hardware and software developer (I doubt if Amazon hired all of the hardware and software engineers to design this, I'm betting they farmed it out, and the design company may be getting paid a fee for each unit). All that said, they're probably making a reasonable profit (25%), not an obscene one, but I think they should forego the profits altogether just to drive sales of the device. I'm guessing the end game for them is more sales of ebooks - no inventory, no shipping, just an enormous profit center. Why limit the population of book customers to pay back development costs quicker? As the iphone can read kindle books, there will most likely be more kindle compatible ebooks, Amazon should be getting as many kindles out there now before they have real competition (like Apple's upcoming, unannouced new product that has a color touch flat screen and lots of flash).
I also don't believe they have paid a significant fixed fee to Sprint for lifetime access to the mobile network. I'm betting that Sprint gets a piece of every file that is delivered wirelessly to the Kindle, which is why Amazon charges five or ten cents for converting pdf's and sending them wirelessly to the kindle, but does it for free if you use email and download it over USB from your PC. Also, lots of websites for newspapers that are free have monthly charges when read on the kindle, I would bet that's because Sprint wants a nickle or dime for each issue.
Amen!
I have been wondering, has anyone been able to pull the wireless device out of the kindle 2 and attach it to a computer? :)
Le Big Mac, if you think that an $8 grocery store steak is comparable to a prime dry-aged steak, then you should just stick to chicken.
A wireless broadband module for under $40? I think iSupply needs to look again.
Ack - you guys need to actually work in business before you say that this is a good deal for Amazon! There aren't many products that sell for only 2x their cost to build, especially in the consumer electronics world. How much does an iPod Shuffle cost to build? How about a flat screen tv?
What about shipping costs? Packaging? Marketing? Software? Licensing?
Hit up your local community college and take an evening class or two...
Funny how whole books are considered small change when it is Amazon dealing with the cell phone carriers yet consumers like us pay a comparatively outrageous amount of money for text messages.
So... don't forget... you get 3G service for life without a contract. Hence the extra cost in there. They aren't trying to screw you.