The bill of materials (BOM) for the Amazon Fire Phone is low enough for profitability, but it will take large volume sales for Amazon to recoup its investment, according to IHS Technology (NYSE: IHS).
The BOM for the Amazon Fire Phone with 32 gigabytes of NAND flash memory totals $201, according to a preliminary estimate by the Teardown Mobile Handsets Intelligence Service at IHS Technology. The cost of production is $205 when the $4 manufacturing expense is added. The preliminary teardown assessment does not include other expenses such as software, licensing, royalties or additional expenditures such as research and development.
The unsubsidized retail pricing of $650 enables Amazon to compete on a per unit basis with other manufacturers selling smartphones at similar pricing, said IHS. However, the teardown report notes the BOM and manufacturing cost do not account for R&D expenses, which will have a major impact on profitability.
“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 statement. “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,” said Ian Fogg, senior director for mobile media at IHS, in a statement. “This is a high-risk launch-price strategy which 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.”
The “Teardown – Amazon Fire Phone” report, from the Materials & Cost Benchmarking service of IHS, also finds that Amazon is marketing the Fire Phone’s user-friendly Dynamic Perspective interface as the smartphone’s main feature. The technology allows one-handed access to menus and shortcuts by tilting or swiveling the phone, or peeking at the display. To make it work, the Fire uses four camera-like sensors (monochrome sensors with a resolution of 400 x 400 pixels) placed in each of the Fire’s corners to detect the user’s perspective relative to the display, according to the report.
The Fire also incorporates four infrared (IR) light emitters, one in each corner of the front bezel. “These emitters may project more than just a blanket of infrared light,” stated Rassweiler. “These IR emitters may broadcast an array of light ‘points,’ which are then ‘seen’ by the cameras, providing the camera with a ‘map’ of its surroundings. Though we are not sure at the moment, it is assumed that the Amazon Fire phone sensors work in a similar manner to the technology used in Microsoft’s Xbox Kinect.”
The sensor cameras feature specialized image sensors from OmniVision Technology Inc., which IHS suspects is the OV6211 shutter sensor for computer vision applications.
At the heart of the device is the MSM8974 applications processor and wireless baseband chip from Qualcomm. The Teardown Analysis service said it has seen several variants of the MSM8974 in more than 10 teardowns of other phones and tablets this year.
Other Qualcomm devices featured in the phone include the WCN3680 chip, which delivers support for the 802.11ac advanced Wi-Fi specification, and the full RF 360 suite of integrated circuits (IC), consisting of the QFE1100 envelope tracker, the QFE1520 and QFE1550 antenna-matching tuners and the QFE23xx series of transmit modules. The suite is designed for wide global LTE deployments, reducing handset design SKUs and time to market, said IHS.
The display/touch-screen subsystem is conventional for midlevel smartphones, according to the report. The 4.7-inch, 1,280 x 720p-resolution display is supplied by Japan Display. “The use of a less-than-cutting-edge display allows Amazon to keep the Fire Phone’s BOM costs down—and to keep its hardware margins up,” said IHS.