Amazon is making a decent buck off its new Fire smartphone, but it'll have to sell quite a few to truly recoup its investment given handset features.
That's the take from Teardown Mobile Handsets Intelligence Service at IHS Technology, which stripped down the device bill of materials (BOM) costs and determined Amazon is getting a small profit on each device sale. Amazon's total cost is about $209, $205 for hardware and $4 for manufacturing. The retail price of the Fire is $650.
"The features that differentiate the Amazon Fire Phone -- particularly its unique Dynamic Perspective interface -- required the development of specialized hardware and software," said Andrew Rassweiler, senior director, cost benchmarking services for IHS, in a press release.
"This kind of R&D effort is expensive and can only be paid off through major sales success. In a highly competitive smartphone space dominated by Samsung and Apple, Amazon will face the considerable challenge of selling enough Fire Phones to make its R&D effort worthwhile."
The Fire, with 32 GB, is available for $27.09 a month with AT&T Next 18 or $199 with a two-year contract. The 64-GB version is $31.25 a month with AT&T Next 18 or $299 with a two-year contract, according to Amazon.
"Given an unsubsidized retail pricing of $650, this means the Fire Phone has hit the appropriate price point to compete profitably on a per-unit basis with other manufacturers selling smartphones for similar prices," states the release.
Ian Fogg, senior director for mobile media at IHS, said Amazon's "high-risk launch-price strategy" is unsustainable for a smartphone market entrant like Amazon.
"Simply having a well-known brand on the box is not enough to sell smartphones, as Nokia and Motorola know well."
Industry watchers note Amazon's pricing and sales strategy with Fire is quite different than its Kindle e-reader approach where the giant e-tailer took a bit of a loss on costs to get the e-reader into the market. One report states Amazon actually took a $10 loss on each unit sold when the Kindle debuted.
But then again Amazon isn't the same Amazon it was back then. Not only has it become the leading e-reader player, but its Amazon Web Services is now among the ranks of IBM and Microsoft. So it's not a stretch to see why it considers itself a contender against powerhouse players like Apple and Samsung in the smartphone marketplace.