Nexus 7 Tablet Teardowns Indicate Its True Mission as Lead-in for Google Services

It’s been two weeks and a day since Google introduced its latest whiz-bang device, the Nexus 7 tablet, to the world on June 27. Thus, the analysts have had a bit of time to take the thing apart and offer some opinions about it.

An early reviewer, TechInsights, reported that the basic 8GB Nexus 7, which will sell for $199 when it arrives in stores in a few days, can’t possibly be a huge profit center for Google. The initial estimate of the Nexus 7 production cost was $184 per unit, based on its teardown.

With a mere $15 profit on each sale, based on that cost estimate, the 7.5 percent profit margin is paltry at best. However, the Nexus 7 is expressly designed, among the other end goals of Google, to funnel users to the newly revamped Google Play store, which is where consumers can buy books, movies, TV shows, magazines, music and apps

Google Play ads and links show up in several places on the Nexus 7, often annoyingly.

Margins OK, Not Great

Another hardware researcher, IHS iSuppli, also took apart the Nexus 7 to analyze its components and came out with its own report July 12. iSuppli determined that the Nexus 7 costs less ($159.75 for the basic 8GB tablet, including labor costs), a margin of 20 percent for the device’s $199 sale price.

The profit margin widens when a 16GB version sells for $249. According to iSuppli, that one costs Google only about $7.50 more for the added storage capacity, totaling $166.75 in hard and labor costs. The subsequent $82.25 profit for Google for each 16GB model increases the net margin to a more comfortable 33 percent.

In summary, the Nexus 7 isn’t exactly a loss leader, as some analysts have claimed; it’s profitable on its own terms–even when marketing, sales, distribution and handling costs are factored in. When the devices get on retail shelves, Google will still be seeing satisfactory profit margins.

Competes More With Kindle Fire Than iPad

Andrew Rassweiler, a senior research director at iSuppli, who wrote the teardown report, said that the Nexus 7 competes less with Apple market-leading iPad and more with Amazon€™s popular Kindle Fire–mainly on size and price.

€œThe two platforms are similar in many regards, including the use of the 7-inch display, the eschewing of 4G wireless connections in favor of WiFi, support for virtually identical battery lives and the same pricing for the entry-level models,” Rassweiler said. “However, the Nexus 7 has superior specifications to the Kindle Fire, giving it a more attractive feature set that may make it more desirable to consumers.€

The Nexus 7 separates itself from the Kindle Fire with its higher-resolution display using in-plane switching (IPS) technology, Rassweiler said.

“Google€™s tablet also employs a quad-core Tegra 3 processor from Nvidia Corp., compared to the Kindle Fire€™s OMAP 4430 dual-core processor from Texas Instruments Inc. The Nexus 7 also includes a camera and sports a near-field communication (NFC) chip for wireless commerce€”both features absent on the Kindle Fire,” Rassweiler said.

Chris Preimesberger is Editor for Features and Analysis at eWEEK. Twitter: @editingwhiz