There was never a doubt that Amazon would sell the new Kindle Fire tablet below cost to create traction against industry leader Apple, developer of the iPad2.
Engineers at IHSiSuppi originally tore down a Kindle Fire and estimated the total cost to build it was $209.63. Now they've lowered the cost about 4 percent, to $201.70.
In fact, IHSiSuppli now believes the materials alone cost only $185.80, but the extra costs come from manufacturing services.
Seattle-based Amazon started shipping the Kindle Fires this week, priced from $199. Prices of older Kindles were slashed to $99.
Amazon announced it had taken in record numbers of orders but didn't specify the amount. Industry analysts estimated the pre-shipment number was at least 250,000. The company is believed to have ordered as many as four million units for fourth-quarter shipments. CEO Jeff Bezos said he wanted to create the best content platfrom for the mass market.
IHSiSuppli estimates Amazon saved money by installing a wireless local-area network (WLAN) module from Taiwan's Jorjin Technologies, in place of a more expensive unit from Texas Instruments or Broadcom. That shaved off $1.
The most expensive component is the $87 display and touch screen provided by LG Display or E Ink Holdings, the engineers said. If the usual practice holds, they will decline in price as volume increases.
Texas Instruments still plays a major role in the Kindle Fire. The Dallas-based semiconductor giant provides the Open Multimedia Application Processor (OMAP) crucial for the system for around $14.65 as well as the power management device and audio codes for an additional $9.65.
The new tablet's flash memory chips are from Samsung Electronics with only four gigabytes of memory rather than eight as originally estimated. The original Kindle Fire had the more powerful chip sourced from Elpida, the memory chip maker formed by Japan's NEC and Hitachi and later Mitsubishi.
The two memory chips account for $22.10 or 12 percent of the Kindle.
Amazon shares traded around $202.14, down about 1 percent, on Friday. The company's market capitalization is $92.1 billion compared with Apple's $351.1 billion.