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A reset to factory only does a user disk formatting and deleting all temporary and configuration files (it formats another internal partition) and puts the Kindle as completely empty of content and configuration.
But it does nothing with firmware itself, that is installed in a 3rd partition marked as read-only. If the firmware is bad installed it will continue bad.
A factory reset is when some work files get corrupted for any reason.
I thing there will be a option for a full reflash, but it seems it's done via hidden serial port (you need some soldering) and AFAIK none knows how to do it.
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