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

16GB version charges premium price for double the storage

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

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

Google launched its Nexus 7 tablet at its Google I/O conference in San Francisco. (Image: Google)

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

With the 16 GB version, Google is charging $50 more at retail by adding only $7.50 more in memory cost, adding $42.50 to Google's bottom line, IHS said.

IHS said its teardown totals 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 the $499, 9.7-in. iPad.

Both the Fire and the Nexus 7 have the same size display and save costs by providing Wi-Fi only, and not including 4G or 3G service, Rassweiler said. Other than having nearly the same amount of battery life and the same price, Rassweiler said the Nexus 7 has superior specifications that "may make it more desirable to consumers."

Among those specs is the Nexus 7's higher resolution display with in-plane switching technology and a quad-core Tegra 3 processor from Nvidia, compared with the Fire's OMAP 4430 dual-core processor from Texas Instruments. Also, Nexus 7 comes with a camera and NFC (near field communications) chip, both missing from the Fire.

Such added features make the 8 GB Nexus 7's materials cost $18 higher than the Kindle Fire's materials cost of $133.80, which has fallen dramatically due to reductions in component prices. At the time the Fire first launched last year, IHS said its BOM was $191.65, meaning that Amazon was paying a subsidy on the device when other costs were added in, 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 IIIsmartphone also has a combination device built by STMicroelectronics, IHS said.

Displays are typically the biggest BOM cost of any tablet or smartphone and the same holds 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 biggest difference in a component cost between the Nexus 7 and Kindle Fire is the processor. The Nexus 7's Tegra 3 chip costs $21 versus $13.50 for the Kindle Fire's OMAP 4430.

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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