Google to likely make modest profit on Nexus 7, IHS teardown reveals

Computerworld - A teardown of the Nexus 7 tablet reveals Google is likely to break even on the $199 8GB version of its tablet while earning a modest profit on the 16GB version, which is priced at $249.

IHS iSuppli said the 8GB version of the Nexus 7 has a bill of materials (BOM) and manufacturing total cost of $159.25. The total for the 16GB version is $166.75.

"Google will at least break even on the 8GB model ... and will make a modest profit on the 16GB version," IHS said in a statement last week.

With the 16GB version, Google is charging $50 more at retail but adding only $7.50 worth of memory, thereby bumping up its bottom line by $42.50, according to IHS.

IHS said its teardown cost estimates are preliminary and don't include software, licenses and royalties.

IHS analyst Andrew Rassweiler said the Nexus 7 competes more with Amazon's Kindle Fire, also a 7-in. tablet that sells for $199, than Apple's $499, 9.7-in. iPad.

Both the Fire and the Nexus 7 have the same size display and cost less to build than some tablets because they come with Wi-Fi connectivity only, and don't include 4G or 3G cellular service, Rassweiler said. They both offer nearly the same amount of battery life and they cost the same, but Rassweiler said the Nexus 7 has superior specifications that "may make it more desirable to consumers."

For example, the Nexus 7 has a higher-resolution display than the Kindle Fire. It also has in-plane switching technology and a quad-core Tegra 3 processor from Nvidia, while the Fire has an OMAP 4430 dual-core processor from Texas Instruments. Moreover, the Nexus 7 comes with a camera and an NFC (near field communications) chip; the Fire doesn't have either of those features.

Such added features make the 8GB Nexus 7's materials cost $18 higher than the Kindle Fire's materials cost of $133.80. The cost of the Fire's materials has fallen dramatically as a result of reductions in component prices. When the Fire first launched last year, IHS said its BOM was $191.65, meaning that, with other costs added in, Amazon was essentially paying a subsidy to sell the device for $199, Rassweiler noted.

IHS also found a tablet novelty in the Nexus 7 components -- a combination of a gyroscope and an accelerometer from InvenSense. The Samsung Galaxy S III smartphone also has such a combination device built by STMicroelectronics, IHS said.

Displays are typically the biggest BOM cost of any tablet or smartphone, and that is true for the Nexus 7, IHS said. The display costs $38, plus another $24 for the touchscreen. The Kindle Fire's display costs $35, and its touchscreen costs $24.

The processor is the component with the biggest difference in cost in comparisons of the Nexus 7 and the Kindle Fire. The Nexus 7's Tegra 3 chip costs $21, whereas the Kindle Fire's OMAP 4430 chip costs $13.50.

In an email, Rassweiler said the Tegra 3 "should be a very powerful chip and therefore has the potential to provide the foundation for a very good user experience."

Even though IHS compared the Nexus 7 with the Kindle Fire, Amazon is expected to soon update the Fire, with four tablet versions expected.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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