Image courtesy of iFixit
With the Nexus 7 official launch potentially minutes or hours away there has been a pretty solid stream of news about it around the web. A recent teardown (IHS iSuppli) reveals the 8GB Nexus 7 is earning Google a 24% profit on hardware alone. Of course they earn even more on the 16GB version.
That’s surprising since “the web” has been reporting the fact that the Nexus 7 is a break even or loss for Google. Nope. In fact, it is actually quite impressive since, for example, the iPad 3 $499 model earns Apple a respectable 26% profit.
Hopefully this means more “mid-high” end stuff at lower cost in the future.
Here is a little chat Chris and I had about the news:
Christopher Wayne Well the difference is that the iPad 3 makes very few compromises while the Nexus 7 made many compromises to get to that percentage.
I know you don’t care if the mfg makes a profit but I do. I don’t think the mfg taking a loss is to the consumer’s benefit – in the long run. If they don’t make a profit then there will be no further innovation – they won’t innovate unless there is a profit in it (one way or another) so I WANT them to make a profit so they will keep cranking out the new products. That said – they definitely make MORE profit than they need!
What this also doesn’t tell me is whether or not Apple can make a product in this size range WITHOUT major compromises and still make a profit. What will they have to give up to do it? Unclear.
Francis Scardino I can agree to a point. But even though my thoughts may be far-fetched, I believe Google creates these products not solely to make money but to pave the way for the future and 3rd party products. (Nexus One, Chromebook, Nex 7) 24% profit I would not consider too much of a loss. Google does not need the Nexus 7 to innovate.
I mainly wanted to show that the 2% difference from the lowest end iPad to the lowest end Nex7 is not enough to say that the company is building at a loss, by any stretch. If that is the case I would have to say that Apple is also selling the $499 model at a loss as well. I agree there is some compromise in the Nexus 7, but IPS display, Tegra 3 (one of the most powerful CPU/GPU mobile internals to date), big battery, BT, GPS, Gyro…etc
Christopher Wayne Well – Amazon sells their device at a loss because their money comes from content sales. Google can come in at a lower price because their money comes from putting your information (and you) in front of advertisers. Apple has to make their money (at least in part) from their device sales. I think the margins mean more to them because they still make a big chunk of their income from the actual device sale. That 2% difference isn’t really truly representative of the way the different companies gather revenue and the cost/profit of the device. It’s a little misleading
Francis Scardino I am only talking hardware. Nothing to do with apps, software, etc..So dollar for dollar with hardware the change on the lower end model is pretty marginal. Obviously the highest end model for Apple is their money machine, it’s over 50% profit, the N7 16GB jumps way up to but not close to 50%. The only reason I brought it up was because I read sooo much about Google taking a loss on these tabs which simply by the numbers is not true. I know there is marketing fees and all that, but I am only talking $ for $ hardware cost to manufacture.
My thoughts are that even though Google is not trying to get crazy with hardware revenue there is actually a good bit of room to make some money here. I believe they use their hardware devices as “pioneer” or “icebreaking” devices to lead the way for their partner manufacturers to follow. The Nexus tablet line does not profit them nearly as much as some of the competition, but I think easily enough to make a dent in Android sales, as well as generating a decent bit of revenue as well. The 16GB model only costing them $7.50 more to make, they are jumping up to 37% profit, and still keeping the cost low enough to satisfy consumers looking for a budget (gaming/media) powerhouse. I don’t think the Nexus 7 tablet is the end all holy grail tablet, but I do think it will set the bar on smaller, low cost devices.
What do you think? Post up your thoughts in the comments below.