Amazon Kindle 2 costs about $185.49 to build, $359 to own

iSuppli is the authority when it comes to manufacturing cost estimates and the firms latest victim is Amazon. According to a new report following iSuppli’s teardown and analysis, the Kindle 2 costs about $185.49 to build. In other words, Amazon’s margin seemingly approaches a sky-high 50%. Of course iSuppli’s numbers do not include expenses such as distribution, marketing and whatever Amazon pays Sprint for unlimited access to its data network, but it’s no wonder Amazon is doing everything it can to lead incite an e-book revolution. Should owners feel shafted? We think not — any Kindle 2 owner will tell you that WhisperNet is a pure joy. Just tell yourself Amazon’s seemingly huge profit margin is your WhisperNet subscription fee. If you own your Kindle 2 for 18 months before upgrading, WhisperNet comes in under $10 per month. $10 beats any unlimited data plan we’ve ever heard of, that’s for sure. Hit the jump for iSuppli’s press release.

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.

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