16GB Kindle Fire HD costs Amazon $207 to make

An IHS teardown of the lowest-priced Kindle Fire HD, which costs $199, shows Amazon loses less money on the tablet than its predecessor.

Josh Miller/CNET

Amazon spends $207 to build a Kindle Fire HD, which means the company is still losing money, but not as much as it did with the original Kindle Fire, according to the results of a teardown by research group IHS.

The company broke down the cost of a low-end $199 Kindle Fire HD -- which has a 7-inch display, 16GB and is Wi-Fi wireless only -- in its report. The report says materials and production costs Amazon $147. IHS estimates that the added cost of other expenses like software, licensing, or royalties, would put the device's cost at $207.

Amazon is willing to take the loss in exchange for growing its customer base , which will mean more users for the content it sells.

The company was able to make the Kindle HD Fire for less than its predecessor despite having better features like increased memory, a better processor, and the addition of a camera, IHS noted. Analysts found that Amazon was able to save the most money on the display, even though there is an increase in resolution. It also saved money on its touchscreen system.

"Overall these are all progressive incremental changes, with nothing revolutionary added," IHS Senior Principal Analyst Andrew Rassweiler said. "However, these features allow Amazon to offer a better feature set for less cost than the last version of the Kindle Fire, while maintaining the 'magical' $199 entry point at retail."

Here's the full breakdown:

IHS

Rassweiler also noted Amazon's 8.9-inch 32GB version with Wi-Fi gives Amazon a better profit margin because it has a higher markup incrementally, a tactic that's similar to Apple's approach to pricing. The 16GB and the 32GB versions have a $70 difference, whereas the 7-inch model has a $50 price difference between those two memory options.

"Amazon has taken an interesting twist on the 'memory upgrade for dollars' approach that Apple pioneered with the iPad line," Rassweiler said.

The difference is even starker with the 8.9-inch with LTE in 32GB and 64GB, which has a difference of $100 in its retail price.

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