What do we have here? Google’s
I’ll believe it when I see it
There weren’t any real meaningful component surprises found beneath the surface. We already knew the juicy details like the NVIDIA
Source: iFixit.
Sharp makes an Android tablet with NFC, but it’s geared towards the Japanese market. As far as mainstream domestic ones, there simply aren’t any. Apple’s
Dollars and sense
iSuppli provides a preliminary bill of materials, and compares it to Amazon.com’s
Components | Nexus 7 (8 GB) | Nexus 7 (16 GB) | Kindle Fire (8 GB) |
---|---|---|---|
Memory | $13.50 | $21 | $13.35 |
Display and touchscreen | $62 | $62 | $59 |
Processor | $21 | $21 | $13.50 |
Components and manufacturing total | $159.25 | $166.75 | $139.80 |
Retail price | $199 | $249 | $199 |
Gross margin | 20% | 33% | 30% |
Source: IHS iSupply July 2012.
The Kindle Fire has seen its component cost come down significantly since its release. Its original costs were estimated near $192 and have fallen to $133.80 (before manufacturing). The 8 GB Nexus 7 costs $18 more in components than the Kindle Fire.
When you include manufacturing costs, the total for the 8 GB model increases to $159, meaning Google may see a gross margin of 20%. After including those additional costs, iSuppli believes that Google will likely break even on the 8 GB model. Especially when you include the $25 Google Play credit that Big G is handing out as a promotion for an unspecified "limited time."
However, if you look at the 16 GB model, the extra storage costs an incremental $7.50, while it retails for an additional $50. On the 16 GB model, there is some margin to make. For comparison, when the third-generation iPad was released, the entry-level 16 GB model fetched an estimated 37% gross margin (including manufacturing).
Three’s company
These numbers also help explain why the Nexus 7, which is about to launch at third-party retailers, is only available in the 16 GB model. Retailers need to try and make some money for their troubles, and that wouldn’t be possible with the 8 GB breakeven model. By making a couple of extra bucks on the high-end model, Google can pay for distribution costs and help subsidize any early losses it incurs on the low-end model.
Amazon is undoubtedly preparing to update its Kindle Fire, and presumably would keep a similar price point, but beef up the specs. The second-generation is even rumored to carry the very same Tegra 3. I’d also expect it to continue selling its own newer device at cost, while potentially discounting the first-generation Kindle Fire.
Within a matter of months, we’ll likely see Amazon and Google dominating the $200 price point with breakeven devices, and Apple will probably sit just above them with a slightly larger (7.85-inch), slightly more expensive ($250) offering, leaving little for everyone else.
Apple’s inevitable move downmarket with an iPad Mini is one reason the company has plenty of room to run. The Motley Fool has just launched a brand new premium research service all about Apple. Sign up for a comprehensive report that covers everything a current or prospective shareholder would need to know. NVIDIA’s mobile processors continue to gain traction as it taps into the next trillion-dollar revolution. This special free report will detail the chipmaker’s prospects as smartphone and tablet adoption continues to skyrocket.