Amazon selling Kindle Fire "at a loss"

Amazon is likely selling its Kindle Fire at a loss on hardware alone - before development, marketing and software costs are even considered.

That's according to a price breakdown of the tablet by IHS iSuppli, which predicted the bill of materials and cost of manufacturing at $209.63, with the device set to sell for $199 in the US.

Other analysts had estimated the device's bill of materials would be around the $150 mark, but it's worth noting that iSuppli's prediction is based on market knowledge - what it calls a "virtual estimate" - rather than an actual physical teardown, as the device hasn't started shipping yet.

The analyst firm said such pricing showed Amazon is "willing to settle for a razor-thin margin on sales of devices and digital content in order to achieve the larger goal of promoting merchandise sales at its online store".

While the plan to drive content sales isn't much of a surprise, the last time iSuppli did a price breakdown of an Amazon device - the second generation Kindle - the $359 price was almost twice the $185 bill of materials.

However, iSuppli believes Amazon won't make much money out of digital content either. "When further costs outside of materials and manufacturing are added in — and the $199 price of the tablet is factored along with the expected sales of digital content per device — Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold," the analyst firm predicted.

The analyst firm believes Amazon is simply trying to encourage customers to buy other products from its online store, saying "the real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content" but in physical goods sold via the website.

Price pressure

Regardless of the tight margins, iSuppli believes the Kindle Fire will be a success and could grab second place in the tablet market behind the iPad.

The Kindle Fire's budget pricing is already being cited as a reason for the BlackBerry PlayBook being cut by $200 at Best Buy stores in the US, with the HTC Flyer following suit with its own $200 price cut this weekend. However, both tablet makers could be also taking their cue from the HP TouchPad, which sold out after its price was slashed to £89.