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
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)|
|Display and touchscreen||$62||$62||$59|
|Components and manufacturing total||$159.25||$166.75||$139.80|
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).
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.
Fool contributor Evan Niuowns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Amazon.com. The Fool owns shares of Apple. The Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, NXP Semiconductors, Google, and NVIDIA. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing puts on NVIDIA. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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