Tuesday, April 21, 2009

Inside the Kindle 2 - what is its "true cost"?

Businessweek's Arik_Hesseldahl reports on what was uncovered during the disassembling of a Kindle 2.

Points from the article for those curious about the details.
1. Research firm iSuppli tears one apart to determine the cost of its components.
    Getting straight to the point, they estimate the cost of building at $185.49, or 52% of its retail price.
2. Hesseldahl makes an assessment of its unique identification and branding in a short time:
"...Amazon's (AMZN) Kindle has come to personify the e-reader in much the same way Apple's (AAPL) iPod brand of music player is often used generically to mean an MP3 player."
3. iSuppli identifies the suppliers and estimates the the cost of the components, to arrive at a rough estimate of the profit margin for each unit.
3. They believe the most costly component is its display (surprise!) made by E Ink.
4. The display is integrated into the final module by Taiwan's Prime View International (PVI).
    (This leads to the question of quality control issues -- E Ink's? or PVI's ?)
5. iSuppli's supervising analyst, Andrew Rasseiler, estimates the cost of the E Ink display at $60 "or about 42% of the cost of materials"
6. "The screen uses tiny, round microcapsules that change to black, white, or gray to represent text or images as needed."  When the unit was disassembled, the last image remained on the screen, as no power is needed to keep it there, requiring less battery power/drain.
7. Novatel Wireless makes the basic wireless module that costs $39.50.
8. Since the Kindle 1 had wireless components right on the motherboard instead of in a separate module as the Kindle 2 has, that was a more complicated and costly design, Rassweiler says.
9. Inside the wireless module are Qualcomm chips, which cost $13.18.
10. The main applications chip is from Freescale Semiconductor (spun off from Motorola) at a cost of $8.64.
11. Other:  memory chips, Samsung;  power mgmt chips, TI;   and 3 other companies provided some parts.

So we've a total estimated cost of materials.  Then there is of course the additional cost of its main feature, wireless access and the pre-paid use of Sprint's EV-DO cell phone network which usually costs cell phone users at least $30/month for limited use, with tiered levels (above) available.  At this point, Kindle users can access the entire Net 24/7, even if it is far from ideal in execution.

Add the cost of assembling, sw/hw development, distribution, management, customer support, etc.  Jeff Bezos has mentioned a few times that the profit margin is low on the unit, which is likely a reason they don't distribute it through stores, but they appear to have some faith in its more addictive powers, allowing customers to use it for 30 days and to return it if just uninterested in keeping it.  I've not heard of anyone having problems getting the refunds.

ADDED 4/27/09: Earlier photos of the inside of the Kindle 2 - page 1, page 2.  Note a commenter's note that what some thought was a spot for an SD card is instead a SIM connecter, with less pins than an SD connector. Below are ways to Share this post if you'd like others to see it.
-- The Send to Kindle button works well only on Firefox currently.

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(Older posts have older Kindle model info. For latest models, see CURRENT KINDLES page. )
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