A teardown analysis of the iPad mini and the Kindle Fire HD shows that there is very little difference between the bills of material (BOM) for the two tablets. According to IHS iSuppli, the BOM for the $329 iPad mini is about $188; the $199 Kindle Fire HD about $165. Yet Amazon loses money on every Kindle sale and Apple can make up to $100 per unit, depending on the miniís memory.
By now, Amazonís strategy is well-known: if it puts tablets in the hands of consumers, theyíll buy products from Amazon. Andrew Rassweiler, senior principal analyst, teardown services, for IHS observes:
Amazon and Google want to put tablets in consumersí hands -- even if it means doing so at a minimal hardware profit -- with the intent of making their money on the content users buy, and/or the advertising and paid content they will be exposed to by buying the devices.
Apple, on the other hand, focuses on its hardware:
Appleís strategy entails offering differentiated hardware that justifies higher price tags than comparable products. This differs markedly from Amazonís 7-inch Kindle Fire HD and Googleís Nexus 7 tablets, both of which are essentially low-margin or no-margin giveaways at a $199.00 retail price. Apple makes healthy margins on its hardware, while Amazon and Google employ different strategies with their 7-inch tablets.
Whatís really interesting about these teardowns, which came out separately from IHS, is the mark-up on memory. IHS reports that Apple charges in $100 increments for additional storage capacity, while 16GB of NAND flash costs Apple $9.60 and 32GB for $19.20. The 32GB version generates about $90 in additional profit; for 64GB, the profit is $171 higher.
Amazon is also marking up its memory offerings, IHS notes:
The Kindle Fire HD 8.9-inch with LTE comes in 32GByte and 64GByte options. There is a $100 retail price difference between the models. These price variations are interesting because the cost of NAND flash is approaching $0.50 per GByte in the market for commodity NAND flash, making these optional upgrades highly profitable for Amazon.
Hardware is clearly key to Appleís profit strategy. The iPad mini, on a percentage basis, is more profitable to Apple than the New iPad, IHS says. While there are a number of features of the mini that are improvements over the New iPad, the display isnít one of them. The mini is not using Appleís Retina technology and contains the same A5 processor -- manufactured by Samsung -- as the New iPad. LG Display and AU Optronics manufacture displays for the mini.
Other notable suppliers in the mini are SK Hynix and Elpida, which respectively supply the NAND flash and DRAM (collectively estimated to cost $15.50); Dynapack, which makes the $13.50 battery; and STMicroelectronics, which sells the gyroscope used in the user interface and sensor combo module.
Amazon has maintained the Kindle Fireís $199 price point and has reduced its hardware expenses ($174.00 vs. $201.70) while adding features, reports IHS. The Kindle Fire HD has doubled its memory capacity, upgraded its processor, and increased the resolution of its display.
Major design winners for the Kindle Fire HD include LG Display, which supplied the display/touchscreen subsystem in the individual tablet torn down by IHS. However, IHS believes that Panasonic is also a source for the subsystem. Samsung manufactures the NAND flash for Amazon; SK Hynix the DRAM; and TI the processor and HDMI IC.
IHS maintains that $199 is still the magical price point for tablets, and Apple competitors are making headway in the market. (See: Crack Opens in Apple's Tablet Armor.) Amazon's ability to reduce BOM and manufacturing costs is beginning to tip its hardware sales toward profitability. It will be interesting to see whether Apple begins to yield on price when consumers figure out how much bang they can get for their tablet bucks.