Amazon may lose as much as $50 on each Kindle Fire tablet that it sells, according to Piper Jaffray analyst Gene Munster.
In an investor note released yesterday, Munster calculated the manufacturing cost of each Kindle Fire at $250. But the company is selling its new tablet for $199. In comparison, Apple spends around $350 to produce a $499 iPad 2.
Assuming Amazon is able to sell 2.5 million tablets in the fourth quarter, Munster says the loss on each Kindle Fire could drill down earnings by 10 to 20 percent. However, as other analysts have noted, Amazon isn’t counting on sales from the hardware.
Instead, the company is hoping to draw in more consumers to spend money on its entire digital shopping center of music, books, videos, apps, and other products. If successful, that strategy should more than compensate for the loss the company takes on each tablet and the impact on earnings.
“We point out that the outlined potential downside does not contemplate additional revenue from the halo of Prime memberships, digital content consumption, and potentially physical product consumption we expect the Kindle Fire to encourage,” Munster said in his note. “With the Kindle Fire, we believe Amazon is attempting a unique tablet strategy by leveraging a superior cloud-based content delivery system tied with Prime to make money off of a device we believe will sell at a loss.”.. Read More [via cnet ]