Amazon Boosts Kindle Fire Production Amid Risky Loss-Lead Strategy

Amazon has ramped up Kindle Fire tablet production to in excess of 5m units before the year is out, supply chain sources have revealed, amid continued strong pre-order demand for the 7-inch ereader slate. Original production estimates were around 3.5m units in 2011, DigiTimes highlights, with that figure already being bumped once, mid-Q3, to 4m. However the loss-leading risk of the ebook retailer's advertising and media-sales supported model has been highlighted by a new teardown of the $79 Kindle that suggests Amazon loses more than $5 on every sale.

Amazon is strongly pushing content on both its traditional Kindle models and the new Kindle Fire, stomaching lower cash upfront on device sales on the expectation that ebook downloads, along with music and video rentals and purchases, will offset that.

That strategy will need to pay off if Amazon is to survive the strong demand for the Kindle. Analysts iSuppli did the bill-of-materials math and suggest each of the ad-supported Kindles costs $84.25 to manufacture, Mainstreet reports [via Ereader-Info], including components and production costs but not the cost of Amazon's software and development, nor licensing fees. According to the teardown, the Kindle's E Ink display module costs Amazon $30.50 per unit, the main PCB $30.37 and actually putting the whole ereader together contributes $5.66.

Amazon is yet to release pre-order stats for the Kindle Fire, though unofficial numbers suggest the company saw 250,00 orders in the first five days. The tablet is priced at $199.99, another loss-leading figure based on iSuppli's $209.63 production cost estimate, and will reach customers on November 15. Meanwhile, an 8.9-inch Kindle Fire is believed to be in the pipeline next.