Google expects modest profit on Nexus 7

The search company is spending big money to manufacture its tablet.

By Benzinga Jul 12, 2012 12:50PM
By Louis Bedigian, Benzinga Staff Writer

Google (GOOG) will reportedly earn a small profit on the standard $199 Nexus 7 tablet.

MarketWatch reports that the manufacturing costs alone for each device come in at $152. That leaves a profit of $47, but does not include other costs, like marketing or distributing. IHS, which analyzed the seven-inch tablet, estimates that Google's expenses are $18 higher than what Amazon (AMZN) now spends on manufacturing the Kindle Fire.

However, when the Kindle Fire was first released, IHS estimated that the company spent as much as $191.65 to build it. Other reports suggested that Amazon spent over $200 to manufacture the device, incurring losses that ranged from $1.70 to as much as $49.

Analysts believe that if Amazon was taking a loss, it did so with the hope of profiting from the sale of content, including annual subscriptions to its premium service, Amazon Prime. Similar to Netflix (NFLX) and Hulu, Amazon Prime is a streaming video service that allows its users to view thousands of films and TV shows from a multitude of devices. But whereas Netflix and Hulu are exclusive to video viewing, Amazon Prime also provides its users with a number of other benefits, such as free standard shipping and discounted two-day shipping for Amazon shoppers.

Amazon is expected to bridge the gap between the original Kindle Fire and the third-generation iPad by building multiple versions of the next-generation Kindle Fire. One report suggests that there could be as many as four new tablets from Amazon, including one that features a high-resolution screen, and another that adds 4G connectivity to the mix. There are even reports that Amazon could release a larger tablet of some kind, though it is not expected to release a device as large as Apple's (AAPL) standard iPad.

Apple is expected to invade Amazon's territory by releasing its first seven-inch tablet, the presumably titled iPad Mini. Rumored to have a high-end IGZO display and a thinner body than the standard iPad, the iPad Mini will reportedly go into production this fall in preparation for a November release.

Many analysts believe that by releasing an iPad Mini, Apple will simultaneously expand its share of the tablet market while cannibalizing some sales of the third-generation iPad. Rumored to be priced at $299, the iPad Mini would cost more than the iPod Touch but retail for less than the iPad 2, which currently sells for $399.

At $299, the iPad Mini would also cost more than the existing Kindle Fire and the standard Nexus 7. This could make it difficult for Apple to compete in the seven-inch market, which tends to cater to cost-sensitive consumers.

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