Google Sells Nexus 7 at Cost, But Analysts Doubt It Will Challenge Apple iPad

Google Works Hard on Android Tablet Breakthrough, But Analysts Remain Skeptical

by Anton Shilov
06/28/2012 | 10:04 PM

Google is trying hard to make its Android operating system a true competitor to Apple's iOS on the market of tablets. The company will sell its Nexus 7 media tablet basically at cost in order to enable low price-points for fully-fledged Android tablets that can run all the applications for the platform. Nonetheless, financial analysts remain skeptical about Google's ability to challenge Apple's iPad with Nexus 7.

Google Nexus 7: Made in USA for $199?


When designing Nexus 7 together with Asustek Computer, Google wanted to make a device that would both look and feel good. Therefore, the device features high-quality IPS screen with 1280*800 resolution as well as "leatherette" (as mainstream media calls it) finish on the backside. To further impress the public, Google claims that the Nexus 7 is "designed and manufactured in the USA", as opposed to Apple's products that are "assembled in China". In a bid to ensure the highest-quality user experience, Nexus 7 will ship with Google Android 4.1 "Jelly Bean" that features new Butter technology which makes operating system respond quicker as well as makes user interface more convenient.

In reality, the Google Nexus 7 is far from perfect. It lacks back-facing camera, unlike Apple iPad and Samsung Galaxy Tab media tablets; it does not support WWAN (3G, 3.5G or 4G/LTE) even as an option unlike fully-featured tablets from Apple and Samsung; it is made of plastic, whereas Apple uses unibody aluminum cases for iPads. Finally, despite of claims, the assembly as well as key components of the Nexus 7 are not made in the U.S. Asustek does not have its own manufacturing capacities, it outsources production to Pegatron, which operates facilities in China; Nvidia produces Tegra 3 system-on-chip at Taiwan Semiconductor Manufacturing Company using 40nm process technology; IPS screens are not made in the U.S., but are manufactured in South Korea by LG Electronics. Perhaps, some of the assembly is done in the U.S., but Nexus is not completely "made in America".

Analysts: Nexus 7 will Challenge Kindle Fire, Not iPad

A good thing about Google Nexus 7 is that it will cost $199 for 8GB version and $249 for 16GB version, which is the cost to manufacture those devices, according to Google's claims quoted by HotHardware web-site. Therefore, Google will not make profit selling the hardware, but hopes to capitalize by selling software as well as content through Google Play store. Unfortunately, the low cost will unlikely help Google to fight the dominance of Apple iPad on the market of tablets, financial analysts believe. The product that Nexus 7 will likely challenge successfully is Amazon Kindle Fire 7".

"While the Nexus 7 tablet stacks up favorably against Amazon’s Kindle Fire, we believe it’s not revolutionary enough to gain significant tablet market share. Targeted at the same consumer likely interested in Amazon’s Kindle Fire, we see several advantages the Nexus 7 has over the Kindle Fire, including its processor, battery life, resolution, and additional features. However, we expect the tablet market to remain dominated by Apple and weakening demand for the Kindle Fire makes us cautious on overall demand for 7” tablets," Kerry Rice, an analyst with Needham & Co., wrote in a note to clients, reports Tech Trader Daily.

Low price of Google Nexus 7 will not necessarily help the company to compete against Apple iPad as consumers are willing to pay for the latter due to impressive ecosystem that Apple has managed to create over the years.

"Given the iPad’s dominance in the tablet market (approximately 70% market share) and potential to release its own 7-inch “mini” iPad, we believe Google will have a difficult time stealing share from Apple given consumer proven willingness to pay a premium price for Apple iPad 9.8"," said Tavis McCourt, an analyst with Raymond James, in a research notes for customers.

Since Google will sell Nexus 7 without any profit or even with subsidies, financial analysts believe that other vendors will not be able to follow with similar price points unless Google will subsidize them somehow. As a result the possible success of Nexus 7 will not be sustainable.

"So far there has been limited sustainable traction for Android in terms of tablet share […] certainly the profitability of the vendors involved has been relatively weak. The issue has been a combination of too high a price point, a lack of applications and poor user experience. We do believe that with the improvements made to Google Play (the cloud service), the price point, design and recent improvement in available applications many of these have been addressed. As to whether this will capture material share the issue we would have is that given its spec we would believe Google are probably heavily subsidizing this device to achieve a $199 price," believes Kulbinder Garcha, an analyst with Credit Suisse.