Thin margin, at least for the 8GB model
Google introduced the Nexus 7 tablet it was quick to point out that it will be selling the device with virtually no profit margin. True and false, as pointed out by Fudo a few days ago.
At $199 the Nexus 7 is a steal, easily the best bang for buck tablet on God’s green earth, so frankly consumers really shouldn’t care whether Google makes a profit on every single device. According to a teardown over at TechInsights, the tablet packs some $184 worth of components. If we were to factor in R&D, logistics, marketing and all other costs, Google could even end up in the red, so $199 is a fair deal to say the least.
However, bear in mind that the BOM does not take into account the fact that component costs drop with time. Last year iSuppli revealed that Amazon’s Kindle has a BOM cost of $185, while the end cost to Amazon was $201. However, at about the same time TechInsights placed the Kindle Fire BOM cost at just $143 and, of course, prices tend to go only one way – down. When Google proudly boasts it is selling the Nexus with virtually no margin, it’s telling the truth. However, as prices go down, it is bound to turn a profit.
In addition, it is worth pointing out that Google will charge users a $50 premium for the 16GB version. That’s $50 for just 8GB of NAND. We don’t have the exact figures for the Nexus, but in its Kindle Fire teardown last November, TechInsight estimated the cost of 8GB of NAND at just $8, but Google will charge consumers $50.
It is hard to say how many consumers will opt for the pricier 16GB version, but it is obvious that Google will make a handsome profit on each one of them. So, while it will sell the 8GB version “at cost” with next to no margin, it will simply offset its losses thanks to the 16GB version. Of course, if the vast majority of consumers goes for the $199 8GB model, this won’t be the case.
However, I don’t doubt for a second that quite a few shoppers will go for the 16GB version instead. I know I would – margin or no margin, it is still great value for money.