There's a noticeable lack of direct figures from some of the most important players in the tablet market. Amazon.com (AMZN 0.78%) simply refuses to give investors any numbers when it comes to Kindle Fire units, instead only offering vague but impressive figures like unit sales were "up 3x week over week" even after Apple (AAPL +0.01%) unveiled its competing iPad mini.
Apple isn't shy about its figures. After all, if you had just sold 31 million iPads in two quarters, you'd be bragging too. Search giant Google (GOOG +0.56%) officially entered the foray with a first-party device over the summer, the Nexus 7, a long overdue move to rally the troops in the Android tablet market. Just recently, Big G also unveiled a larger Nexus 10 aimed squarely at the iPad.
That's a lot of Nexus 7s
With the Nexus 7 promptly selling out at many third-party retailers when it launched in July, the big question was, how many of these things is Google selling? Well, when the company reported third-quarter earnings last month, Piper Jaffray analyst Gene Munster dug into the digits and estimated that Google's sequential increase in "other revenue" hinted that it had sold between 800,000 and 1 million units during the quarter.
Google doesn't report Nexus 7 sales directly, likely since they're negligible in the context of its core advertising business. Although it also doesn't disclose its Motorola subsidiary's unit figures anymore either, whereas Moto had previously done so. The device maker accounted for 18% of last quarter's revenue, so those unit figures are of some relevance to investors.
Asus builds the Nexus 7 for Google, and CFO David Chang recently told The Wall Street Journal that Nexus 7 unit volumes are now approximately 1 million per month: "At the beginning, it was, for instance, 500K units a month, then maybe 600, 700K. This latest month, it was close to 1 million." The Nexus 7 has been on sale for four months, so Chang's approximations imply about 1.8 million Nexus 7 units in the third quarter.
That's a big difference compared to Munster's estimates, and much better than expected.
Adding it up
Munster's calculations were based on Google's "other revenue" of $666 million, a sequential increase of about $227 million. The device retails for between $199 and $249, depending on storage configuration, so for example, an average selling price of $225 would imply just about a million units. It's very reasonable to attribute most of this increase to Nexus 7 sales, because last year, the sequential increase in "other revenue" from June to September was much smaller at just $75 million. Besides, CFO Patrick Pichette specifically said the increase was "driven by Nexus 7 sales."
However, I wonder if Google is deferring some Nexus 7 revenue before recognizing it, which isn't uncommon. For example, Apple defers a small portion of revenue from products due to iCloud services it provides as well as future software updates that are provided at no cost to the user. The iDevice maker defers $16 of revenue for every iPhone and iPad sold and recognizes that amount over two years as services and updates are delivered.
Since Google similarly provides cloud services and software updates, it stands to reason that it may also defer part of the revenue from Nexus sales. Google's deferred revenue on its balance sheet increased sequentially by $138 million last quarter.
Take four tablets and call me after New Year's
If Google sold close to 2 million Nexus 7 units last quarter and is now up to 1 million per month, then it has quickly made itself a respectable player in the tablet market. Amazon is reportedly targeting 5 million Kindle Fire units for production this holiday quarter, and Apple supposedly has its sights set on 10 million iPad minis.
We have yet to see if Microsoft (MSFT 0.22%) will report Surface unit volumes now that it's also jumping into the first-party tablet hardware game, especially as that tablet appears off to a strong start. Not only did Surface pre-orders sell out before launch, but we also saw an incredible turnout on launch day that was even reminiscent of many an Apple product launch. That must be gratification for a company that now just wants to be Apple.
The holiday shopping season appears set to be dominated by four tablet families: Kindle Fires, Nexuses, iPads, and Surfaces. Within the non-iPad segment of the tablet market, the Nexus 7 and 10 look like mighty contenders.
