The production cost of Google Nexus 7 8GB and 16GB media tablets, including both bill-of-materials as well as manufacturing cost, is $159.25 and $166.75, respectively, according to preliminary teardown analysis by IHS iSuppli market research firm. As a result, the search giant will likely earn some money selling the higher-end version for $249 and will even retain ability to drop the price if market conditions require so.

The entry-level 8GB version of Google’s new Nexus 7 media tablet carries a bill of materials (BOM) of $151.75, according to preliminary findings from the IHS iSuppli. When manufacturing expenses are added, the cost increases to $159.25. The high-end model with 16GB of NAND flash memory has a $159.25 BOM, for a total cost of $166.75. Just like with other media tablets, displays and touchscreens are the most expensive components of slates. Even though Nvidia Tegra 3 system-on-chip costs $21, more than dual-core SoCs, it does not affect the actual price of a device too significantly.

It should be noted that these teardown assessments are preliminary in nature, account only for hardware and manufacturing costs and do not include additional expenses such as software, licensing, royalties or other expenditures.

Even when additional costs are considered, IHS estimates that Google will at least break even on sales of the 8GByte model, priced at $199 - and will make a modest profit on the 16GB version, which is priced at $249. Like Apple, Google has realized it can boost margins by offering more memory at a more profitable price point. Google is charging $50 more at retail for only $7.50 in additional memory cost at the BOM level. This adds $42.50 to Google’s bottom line on each sale of the high-end model.

“Google’s Nexus 7 represents less of an attempt to compete with Apple’s market-leading iPad, and more of a bid to battle with Amazon’s Kindle Fire. The two platforms are similar in many regards, including the use of the 7" display, the eschewing of 4G wireless connections in favor of Wi-Fi, support for virtually identical battery lives and the same pricing for the entry-level models. 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,” said Andrew Rassweiler, senior director, teardown services for IHS.

The Nexus 7 is 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.

The Nexus 7 distinguishes itself from the Kindle Fire with its higher-resolution display using in-plane switching (IPS) technology. 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. The Nexus 7 also includes a camera and sports a near-field communications (NFC) chip for wireless commerce, both features absent on the Kindle Fire.

These additional features give the Nexus 7 8GB a BOM that is $18 higher than the current cost for the Kindle Fire. IHS now estimates the BOM of the Kindle Fire has fallen to $133.80, down from $191.65 at its introduction in November, due to dramatic reductions in component pricing. These considerable cost reductions provide a breather for Amazon in terms of the subsidy it initially paid to penetrate the market.

Tags: Google, Nexus, ASUS, Kindle, Fire, Apple, iPad, Android, Jelly Bean