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In many cases, it isn't about the base product, it is about the consumables tied to it. Money is made on the sale of razor blades, not razors. Little if any profit is made on cell phones by the carriers. Their money is made on the monthly charges and other fees. With the Kindle, the real money (profit) is made on the books that are bought to be read on it.
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You have good reason to suspect this (and I did as well), however in this case it is not so. The Kindle is not like a Playstation 3 (sold at 12% under cost) or other devices where revenue comes from content and licensing. The Kindle is sold at 48% profit, and Amazon makes practically nothing on ebooks. For a while Amazon was even taking a loss on ebooks, charging less than what they paid to the publisher, in order to keep prices from harming Kindle sales. Not sure if this has changed.
The playing field may change in the future and I'm sure Amazon has that in mind, but for now Kindle sales are about profit from Kindle sales (and stuff like the covers), and they are doing rather well. It's almost an odd thing to see these days, and I sorta find it refreshing. For some reason it makes the purchase feel better to me, ha. A good ol' fashioned product. Well kinda.
They have twice as many free books as non. Just about anything they can give away without taking a loss, they do. Offering content to support a physical product. It's crazy!