Amazon is launching a new consumer device this month. Behind the scenes, rising memory costs are putting pressure on already cash-strapped hardware businesses.
Internal planning documents obtained by Business Insider show Amazon is forecasting a gross loss of $612 million this year for its first-party device business, compared with the leader’s target of a loss of $438 million.
The document says rising memory costs are “putting pressure” on business profits, forcing a “difficult trade-off” between sales volume, average selling price, and gross profit.
The projected $612 million loss is at the gross profit level, meaning it does not account for all operating costs, such as R&D, sales and marketing, and administrative costs.
The numbers provide a rare glimpse into the pressure on Amazon’s hardware business as it absorbs rising component costs. Other tech hardware companies, including industry leader Apple, are facing similar pressures from rising memory chip prices.
An Amazon spokeswoman declined to comment.
A new wave of AI devices
Despite the pressure, Amazon continues to expand its consumer hardware lineup. Even if the company loses money from device sales, it can make money in other ways, such as subscription services, as more customers use the gadget.
In October alone, the company introduced new Kindles, Alexa-enabled tablets, Ring smart locks, and AI wearables under the Bee brand. An August planning document identified Bee and new smart glasses as strategic products still in the investment stage.
Amazon has historically used low-cost hardware to draw customers into its broader ecosystem of shopping and digital content. Rising component costs could make that strategy more expensive, forcing companies to raise prices.
The most obvious shift is in Amazon’s tablets. Earlier this month, the company discontinued its Fire tablet after 15 years and replaced its budget-friendly lineup with the more expensive Alexa Tablet powered by Alexa+. The new device costs between $229.99 and $499.99, a notable increase from the previous generation.
It’s not just Amazon
The planning documents were prepared in August, the same month Amazon raised the prices of products including Echo speakers, Kindle e-readers, and Fire TV devices.
The pressure is beyond Amazon. Apple has raised prices on some Macs and iPads, while Microsoft and Sony have increased console prices. Dell, HP, and Lenovo also face higher memory costs.
AI boom helps push the squeeze. Huge data center investments have increased demand for memory chips, while manufacturers have provided more capacity for high-bandwidth memory used in AI servers. That has tightened supplies and raised prices for components used among consumer electronics.
Amazon experienced both booms. Expect about $220 billion in capital spending this year, much of it to expand AWS data centers for AI demands, while higher component costs dampen the consumer hardware business.
Cost increases from Alexa +
August planning materials show Amazon is reassessing Alexa+’s revenue and operating costs. They asked for updated forecasts, expansion through corporate sales and advertising, and a more detailed AWS cost model.
Amazon now faces the cost of operating Alexa+ at scale. Business Insider reported in July that internal forecasts put AWS Alexa+ cloud spending at about $1.7 billion by 2026, nearly triple the previous year’s figure. Amazon is working to reduce these costs by relying less on Anthropic’s AI model and directing more requests to its own, cheaper system.
A separate project called Moonraker, intended to give Alexa more advanced AI-agent capabilities, is projected to require more than $100 million in GPU spending this year. Amazon is internally considering delaying or reducing the initiative as one option to ease cost pressures, Business Insider previously reported.
Have a tip? Contact this reporter by email at ekim@businessinsider.com or Signal, Telegram, or WhatsApp on 650-942-3061. Use private email addresses, unusable WiFi networks, and unusable devices; This is a guide to sharing information safely.