The True Cost of Amazon's New Kindle

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The main applications chip on the Kindle 2 comes from Freescale Semiconductor, the privately held chipmaker spun off from Motorola (MOT) a few years ago. The chip costs $8.64 and is used widely in several other consumer electronics products, including Microsoft's (MSFT) Zune music players, and in the Ford (F) Sync in-car media control system.

Royalty Payments Not Addressed

Freescale's chip is based around a core—the central brain of a chip—designed by Britain's ARM Holdings (ARMH). It is used in chips found inside most of the world's wireless phones, and often inside consumer electronics. Several chips based on ARM cores show up in Apple's iPhone, for example. One cost iSuppli's teardowns don't address: Any royalties paid to ARM.

Other companies whose components appear in the Kindle 2: Memory chips, both flash memory and DRAM, from Samsung Electronics. Texas Instruments (TXN) provided some power management chips, while Analog Devices (ADI), On Semiconductor (ONNN), and Fairchild Semiconductor (FCS) also provided some parts.

Of course, there will be more e-reader devices. Publishers Hearst and News Corp. (NWS) are said to be working on or investing in new reader devices. Amazon itself has hinted that a new Kindle with a bigger screen is in the pipeline. E-reader devices likely are on the consumer electronics scene to stay, says Mark Mahaney, an analyst with Citigroup (C) who covers Amazon. "These devices are going to be a material part of how people consume and read books over time," he says.

Hesseldahl is a reporter for BusinessWeek.com.

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