Amazon faces tough task turning profit on R&D-heavy Fire Phone

IHS has torn down the Amazon Fire Phone

The Amazon Fire Phone has been broken down by IHS and found to be of reasonable quality, with a build cost of $205, far below its sales price.

IHS is impressed by the handset and said that it could turn a profit for the retailer, however, it added that it will have to sell a lot of models in an already crowded market at its plus-$600 retail price.

Ian Fogg, senior director for mobile media at IHS, said: “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 Fire has decent but not outstanding features, according to IHS, which noticed some compromises.

While the phone will be competing with hardware from Apple and Samsung, IHS said that it will face challenges because of these compromises.

“[The] 4.7-inch, 1,280 by 720p-resolution display falls short of the 1,080p full high-definition screens used in high-end models,” it said.

“From a hardware perspective, the Fire Phone carries a bill of materials (BOM) low enough to allow Amazon to cut a profit for each smartphone sold. But with Amazon likely having sunk large amounts of money into developing the Fire Phone’s unique features, the company must sell large volumes to recoup its investment.”

IHS said that while the retail price compares to the kinds of smartphones that the Fire Phone will compete with, and has a relatively low BOM cost, its unique features, and additional costs such as research and development spend, will also impact on the Fire Phone’s performance.

Andrew Rassweiler, senior director of cost benchmarking services for IHS, said: “The features that differentiate the Amazon Fire Phone – particularly its unique Dynamic Perspective interface – required the development of specialised hardware and software.

“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 Fire Phone’s chips come mainly from Qualcomm, whose MSM8974 applications processor and wireless baseband chip is described as the ‘core’ of the handset. Qualcomm supplies the core processor, radio frequency, integrated circuits, WiFi chip and power amplifier.

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30 July 2014 | 3:03 pm – Source: v3.co.uk

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