What It Costs To Build A Kindle 2

ISuppli announced in a press release that it estimates the total cost for materials and manufacturing of the electronic book to be $185.49. This amount represents almost 52 percent of the device's $359 selling price. About 41.5 percent of the estimated cost is attributed to the display module manufactured by E Ink, which iSuppli approximates to be $60.

Aside from causing less eyestrain, E Ink displays help extend battery life because electricity is needed only to change the image being viewed. Andrew Rassweiler, director and principal analyst, teardown services for iSuppli, observed that the Kindle 2 being dissected continued to display the warning message "Critical Battery" even after the product was completely disassembled for the teardown. With no power or electronic control to refresh the image, the display will be frozen in this state forever.

While the first Kindle had an integrated chip on its circuit board for the Whispernet wireless functionality that lets it seamlessly connect to Amazon's storefront, the second-generation reader uses a broadband module made by Novatel Wireless that costs an estimated $39.50 -- the second most expensive part in the device.

While on the surface it seems that the Kindle 2's profit margin is rather large, it is important to note that these estimates don't include research and development, licensing and royalty fees for some of the components, and the firmware that actually runs the reader. Furthermore, Amazon has not disclosed the fees it pays to Sprint, the service provider for Whispernet, which is included in the final price.

Although we have no doubt that Amazon is making a profit on the Kindle 2, it is most likely much less than what it appears to be at first glance. The device's (and the company's) major advantage is currently the Whispernet service, which provides Amazon with recurring income from the sale of books and various subscriptions.

Competitors are starting to realize that the lack of a similar feature is the shortcoming of their offerings, however, and both rumors and official announcements of new agreements between other e-reader manufacturers and cellular providers prove that this trait of Kindle 2 may soon not be unique. Still, with a few years head start under its belt, it'll be interesting to see if Amazon has anything else up its sleeves.