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The Kindle 2 eBook reader from Amazon.com carries $185.49 in materials and manufacturing costs, according to iSuppli’s Teardown Analysis Service. The direct material cost of the Kindle 2, consisting of all parts used to make the product, amounts to $176.83. Adding in the conversion costs such as manufacturing expenses and the battery raises the total by $8.66 to $185.49. The combined manufacturing and materials costs represent 51% of the Kindle 2’s $359 retail price.

The total materials and manufacturing costs reported in iSuppli’s teardown analysis of the Kindle 2 reflect only the costs for direct materials, manufacturing, and basic tests. Not included in this analysis are costs above and beyond the material manufacturing of the core device itself—i.e., the cost of intellectual property, royalties, and licensing fees; those not already included into the per component price—software, software loading and test, shipping, logistics marketing; and other channel costs. These costs aren’t included because teardowns cannot reveal this type of information.

The E Ink Corp. display module, which represents the centerpiece of the product, represents $60 or 41.5% of the materials cost. Easy on the eyes, the module uses electrophoretic bistable technology, which allows the display to show an image even when it isn’t drawing any power. It also supports 16-level grayscale images, rather than the four-level version used in the previous-generation hardware, making the display look like a printed page.

The next largest cost driver is the wireless broadband module, provided by Novatel Wireless Inc. Priced at $39.50, the module accounts for 27.3% of the materials cost. It supports the cdma2000 1X EV-DO Rev A air standard. While an integrated chipset that was an integral part of the main printed-circuit board (PCB) provided the wireless functionality in the first-generation Kindle, the Kindle 2 divorces the wireless functionality from the core design and uses the Novatel turnkey module instead.

The use of a standard module makes the Kindle 2 easier to design, according to iSuppli. Furthermore, since Novatel manufactures many different wireless modules, it buys components in high volume, which represents leverage it can use to negotiate prices down with suppliers such as Qualcomm Inc., whose device represents the integrated circuit core of the wireless module. Qualcomm’s MSM6801A single-chip baseband processor costs $13.18, iSuppli estimates. The wireless connection runs behind the scenes, providing an always-on invisible link to Amazon’s library.

The Kindle 2 also uses Freescale Semiconductor’s MCIMX31LVKN5C multimedia application processor, priced at $8.64. The processor is based on an ARM11 microcontroller core, which runs at a clock speed of 532 MHz. Freescale also contributed its MC13783VK5 audio circuit and power-management IC.