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Kindle 2 Tear-Down Reveals Price of Components

Posted by timothy on from the venturing-to-gain dept.

adeelarshad82 writes "Amazon's wildly popular Kindle 2 got a good old fashioned tear-down from the folks at market research firm iSuppli. According to the organization, the Kindle 2's manufacturing cost is almost half as much as its retail price."

14 of 169 comments (clear)

  1. And you are surprised? by arizwebfoot · · Score: 5, Insightful

    the Kindle 2's manufacturing cost is almost half as much as its retail price

    So . . . ?

    Is this supposed to be some new business model. I remember working at Monkey Wards and they would raise the prices 400% and then have a 1/2 off sale.

    It's the American way.

    --
    Beer is proof that God loves us and wants us to be happy.
    1. Re:And you are surprised? by Captain+Splendid · · Score: 4, Insightful

      It's the Retail way.

      Fixed that for you.

      --
      Linux, you magnificent bastard, I read the fucking manual!
    2. Re:And you are surprised? by tixxit · · Score: 4, Insightful

      But, I agree with you. If these units are selling, why lower the cost?

      Valve had a 3000% increase in sales of Left 4 Dead by cutting the price in half. Why lower the cost if they are selling? So you can sell even more!

    3. Re:And you are surprised? by maxume · · Score: 5, Insightful

      If you are selling your entire production run of a physical good, cutting the price in half just means that you take in half the revenue.

      --
      Nerd rage is the funniest rage.
    4. Re:And you are surprised? by Anonymous Coward · · Score: 5, Informative

      You do know that Kindle was sold-out for the longest time, since production couldn't keep up with demand?
      They have no need to increase the sales at this point.

      Also: there are very real dangers in lowering price for products; human mind tends to consider more expensive products as better, higher-quality things.
      Conversely, lowering price can dillute the brand.

      So there is very little point for Amazon to reduce the price significantly at this point.

  2. And the other half... by rodrigoandrade · · Score: 5, Insightful

    Is R&D, marketing, distribution, and profit.

    Big deal.

    Why is this news again??

    1. Re:And the other half... by Anonymous Coward · · Score: 4, Insightful

      Also remember that each Kindle has an unlimited cell modem plan built in. Those aren't cheap.

    2. Re:And the other half... by rm999 · · Score: 4, Insightful

      Every time there is a Slashdot article about a tear down with estimate hardware costs, tons of people point out that x% is an appropriate cost, etc. No one is saying otherwise; we can safely assume that Amazon understands the supply/demand curves, has researched the market, and plans on recouping its costs plus some profit - in other words, has priced the Kindle as optimally as it can. But this doesn't mean the tear-down exercise was pointless.

      In my opinion, there is plenty of interesting information encoded in what the hardware costs. For one thing, it makes estimating marginal cost much easier, which is useful from a business perspective (if you can estimate manufacturing costs and sales, you can get a good idea of Amazon's revenue and costs - this is important if you are interested in investing in AMZN. Another interesting aspect is the relative cost of individual components. The high relative cost of the screen makes it clear that Amazon greatly values that aspect of the Kindle. We can expect to see further innovation in e-book screens, as competition will pay attention to this. Consumers should also be interested in information about Amazon's costs. If/when competition ramps up, I would expect prices to fall because of their healthy profit margin. And personally, as an electronics geek, I'm fascinated in how these types of devices are put together.

  3. How is this news? by stewbee · · Score: 5, Insightful

    Is it a surprise to any one that the manufacturing costs are not as much as retail? The article mentions cost to build, ie materials alone, is $185.49. I did not see mention of SW development, so to think that the rest is profit is just silly.

  4. No kidding. by JCSoRocks · · Score: 4, Funny

    This. Just. In. There's a markup on retail goods! Also, the sky is generally blue and you need oxygen to live.

    --
    You are using English. Please learn the difference between loose and lose; they're, there, and their; your and you're.
  5. Half seems like a lot by stokessd · · Score: 4, Insightful

    For a lot of retail electronics, 10% of retail price is about the price of the raw parts. One half of the retail prices seems like pretty thin margins.

    I was assuming that the kindle is much like a polaroid camera, or inkjet printer where the cost of the hardware is subsidized or sold at effectively no profit, and all the money is made in the consumables (the books).

    Sheldon

  6. Also, don't forget the wireless service... by brainproxy · · Score: 5, Informative

    It's not like Amazon somehow magically doesn't have any overhead, shipping or design costs for the Kindle. They also have inventory costs, returned item costs and all the other gunk associated with manufacturing and selling an item.

    Having merely a 50% of the cost (not including IP) for a still pioneering device like this seems totally reasonable.

    Lets not also forget that Amazon pays not only for the bandwidth to deliver all that content, but also pays for the Wireless data service for EVERY unit out there, perpetually.

  7. Re:Shocker! by Linker3000 · · Score: 4, Interesting

    Back in the days of the C64 'me and the gang' looked at the cost of duplicating a commercial ROM cartridge copier plug-in board (for our own use - not to re-sell). I could do the the electronics, someone had the PCB making kit etc.. but when we added up all the raw costs, we were disappointed to find out it was cheaper to buy the item off the shelf!

    --
    AT&ROFLMAO
  8. Apparently... by brian0918 · · Score: 4, Interesting
    Apparently, the folks at iSuppli subscribe to the socialist notion that the men of ideas are of no importance. Obviously, if you just take all the parts and throw them in a box, they'll magically form a Kindle.

    This reminds me of a story from a WSJ article from 1974, about the nationalization of plants in Chile, quote in Ayn Rand's Philosophy: Who Needs It:

    Among them was Dow Chemical Company, which owned a plastics plant in Chile. Bob G. Caldwell, Dow's director of operations for South America, came with a technical team to inspect the remains of their plant. "'What we found was unbelievable to us,' he recalls, 'The plant was still operable, but in another six months we wouldn't have had a plant at all. They never checked anything.' ....Worse yet, the highly inflammable chemicals handled at the plant were in imminent danger of blowing up. 'Safety went to pot,' Mr. Caldwell says. 'The fire-sprinkler system was disconnected and the valves taken away for some other use outside. Then they were smoking in the most dangerous areas. They told us, "You didn't have any fires while you were here before, so it must not be as dangerous as you said."'"