November 19th, 2011

After the low-cost Kindle Fire tablet, will Amazon make a low-cost smartphone?

Amazon SmartphoneAn “Amazon smartphone may be coming next year,” according to a research report by Citi analysts Mark Mahaney and Kevin Chang. The report comes hard on the heels of the launch of Amazon’s Kindle Fire tablet, at an ultra-competitive price point, and rumours of Kindle Fire with a bigger 8.9 inch screen being launched in Q2 2012.

Citi’s analysts, having checked with hardware manufacturer sources in China, believe that Amazon is jointly developing the smartphone with Foxconn, but that the phone itself will be manufactured by TMS (which produces the Kindle line).

The chips that will power the phone are at this point believed to be a Texas Instruments OMAP 4 processor and a Qualcomm “dual mode 6-series standalone baseband” (HSPA+ / CDMA EVDO).

 “What is important to note is that Amazon does not need to make money on hardware.” Mark Mahaney and Kevin Chang, Citi analysts

A rough estimate of the mid-range hardware costs would put production costs in the region of  $150 to $170 per unit. Normally, this would sell at a retail price of $300 or less to make a profit. But, Amazon’s price point for the Kindle Fire, which sells at $200, is believed to be less than it costs to manufacture. It is possible that the company will also consider subsidising the cost of a future smartphone to the same tune to make it ultra-competitive.

It is thought that Amazon views mobile devices as ‘digital shops’ and delivery devices for its digital products, so it is less concerned about making a profit on the hardware. It is hoping that with its devices in the hands of as many consumers as possible, over time it will make far more money from digital books, movies, music, games, subscription services and mCommerce.

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