Fire Phone carries low BOM, teardown reveals
Amazon's Fire Phone packs a hardware BOM low enough to allow the company to profit for each smartphone sold. However, developing the new gadget's features required a huge amount of money, which is why Amazon must be able to sell large volumes to regain its investment.
The BOM of the Amazon Fire Phone equipped with 32GB of NAND flash memory amounts to $201, according to a preliminary estimate by the Teardown Mobile Handsets Intelligence Service at IHS Technology. The cost of production rises to $205 when the $4 manufacturing expense is added.
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. However, the BOM as well as manufacturing cost do not account for the research and development (R&D) expenses, which will have a major impact on the profitability equation for Amazon.
"The features that differentiate the Amazon Fire Phone—particularly its unique Dynamic Perspective interface—required the development of specialised hardware and software," said Andrew Rassweiler, senior director, cost benchmarking services for IHS. "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 launch price also sets the Fire Phone in direct competition with the established flagship smartphones of Apple and Samsung, which are the market leaders, noted Ian Fogg, senior director for mobile media at IHS. "This is a high-risk launch-price strategy which is unsustainable for a smartphone market entrant like Amazon," said Fogg. "Simply having a well-known brand on the box is not enough to sell smartphones, as Nokia and Motorola know well."
The table below presents the preliminary BOM and manufacturing cost estimate of the Amazon Fire Phone. Note that this teardown assessment is preliminary in nature, accounts only for hardware and manufacturing costs, and does not include other expenses such as software, licencing, royalties or additional expenditures—like R&D.
Table 1: Preliminary Amazon Fire Phone teardown estimates
Amazon is marketing the Fire Phone's user-friendly Dynamic Perspective interface as the smartphone's main feature. Dynamic Perspective allows one-handed access to menus and shortcuts simply by tilting or swivelling the phone, or peeking at the display.
To make the Dynamic Perspective technology work, the Fire uses hardware not found in any other smartphone: four camera-like sensors that coordinate their activities with the applications processor. The sensors are placed in each of the Fire's corners, detecting the user's perspective relative to the display. The IHS Teardown Service revealed these devices to be monochrome sensors with a resolution of 400px by 400px.
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