Teardowns of iPad Mini and Kindle Fire HD reveal differing business models

Apple is pursuing its premium brand strategy while Amazon is banking on content

Teardowns of the Apple iPad Mini and the Amazon Kindle Fire HD by IHS iSuppli have revealed that the two devices cost almost the same amount to manufacture, despite the retail prices being significantly different.

According to a preliminary estimate from the IHS iSuppli Teardown Analysis Service, the base model of Apple's new iPad Mini with Wi-Fi only and 16 gigabytes of NAND flash memory, carries a bill of materials of $188. When the $10 manufacturing expense is added in, the total cost rises to $198.

Meanwhile, the low-end Kindle Fire HD, with a 7-inch display, 16 gigabytes of NAND flash and Wi-Fi wireless only, carries a bill of materials cost of $165. When the $9 manufacturing cost is added in, the cost to produce this model of the Kindle Fire HD increases to $174.

However, while the iPad Mini retails for $329 (£269 in the UK), Amazon's Kindle Fire HD costs just $199 (£159 in the UK).

Andrew Rassweiler, senior principal analyst of teardown services for IHS, explains that Apple is sticking to the premium brand strategy it has always used for its media tablet and smartphone products.

"Apple's strategy entails offering differentiated hardware that justifies higher price tags than comparable products. This differs markedly from Amazon's 7-inch Kindle Fire HD and Google's Nexus 7 tablets, both of which are essentially low-margin or no-margin giveaways," he said.

"Amazon's strategy with the Kindle Fire HD 7-inch tablet is not really to make money on the hardware itself. Rather, the idea is to create a product at a compelling price point and then get a lot of consumer traction in order to put Amazon content and the Amazon online store into consumers' hands."

Rassweiler added that Amazon's Kindle Fire HD and Google's Nexus 7 have set new consumer pricing expectations for 7-inch media tablets, which pose a competitive challenge to Apple's media tablet dominance.

It is still too early to say who will win the 7-inch tablet wars. Apple claims to have sold 3 million iPads in the three days since the iPad Mini and fourth generation iPad 4 went on sale in the US, but the proportion of those that are iPad Minis is unclear.

Piper Jaffray analyst Gene Munster believes that 2-2.5m of the 3m iPads sold were iPad Minis. He based his estimation on 'line surveys' that showed that "roughly nine out of every ten customers was waiting to purchase an iPad Mini rather than a full-sized iPad".

Meanwhile, Amazon said that the iPad Mini's launch day was the Kindle Fire HD's "biggest day of sales since launch" and that sales of the device tripled week over week. However, Amazon never releases sales figures for the Kindle Fire, so it is hard to compare the two.

IHS iSuppli has also done a teardown of Microsoft's £399 Surface tablet, revealing that the device costs just $271 (£170) to build.

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