It was speculated before the launch of the Kindle Fire that Amazon would be selling the device at a loss as a means to make money selling content to owners. According to iSuppli, that is in fact the case and the company has updated their tear down numbers to indicate that Amazon is a little closer to break even on the device than previously estimated.
According to iSuppli, Amazon is losing approximately $2.70 on each Kindle Fire sold. The company originally estimated that Amazon was losing almost $10 per device. The most costly component is the touchscreen, at $87, which isn't particularly surprising. The rest of the individual components for the device seem to cost between $15 and $25. The fact that Amazon is taking a loss on the Kindle Fire hardware isn't surprising at all. Amazon seems to model sales around the content they distribute, like movies, books, and music, not on individual hardware units.
More interesting than the fact that Amazon is taking a loss on the Kindle Fire is the estimation that the company might be losing as much as $5 on each $79 Kindle sold. Analysts at iSuppli also did a cost analysis on the cheapest Kindle model currently available and estimated Amazon was paying out $84 per device for manufacturing. That would mean Amazon is losing twice as much per $79 Kindle as they are on each Kindle Fire sold.
The one thing that iSuppli does not account for in the sales of the cheap Kindle is the fact that the device has the "Special Offers" built in. This likely generates some additional revenue for Amazon from their third party ad providers.
It's clear that Amazon is choosing to take the hardware loss in order to push sales of content. Other companies like Apple choose to make their money on hardware with only marginal gains selling content. Time will tell if this risky model works out for Amazon, but so far their content sales seem to be keeping them strongly afloat.
