Google’s new line of Pixel phones have the shape, pricing, and some of the features of Apple Inc.’s iPhone. In fact, it is so similar that if you remove or hide the ‘G’ logo on the back, the Pixel feels like an iPhone wannabe. But critically for investors, the Google Pixels not only resembles the iPhones in design and pricing, they also have Apple-like margins.
Google’s Pixel and Pixel XL phones are priced comparable to high-end Apple and Samsung products. This drew some ire from loyal customers who were expecting mid-range pricing, which the company previously employed for its Nexus line of devices. Many were thrown off with the steep prices, however that doesn’t seem to have affected the sales as much as Google’s own low expectations.
According to market research firm IHS, the Pixel XL smartphone, with 32 GB of storage, costs $285.75 in material and manufacturing, and the retail price of the phone is $769, excluding other R&D costs, which means that the phones make a profit of about $483.25 per unit, which exceeds the Apple’s entry-level 32 GB version of the iPhone 7 profits.
The cost to manufacture the Google Pixel phone closely matches that of its intended rivals, a logical and expected move, especially since Google’s new offering figures to target the same class of high-end users that normally flock to flagship smartphone models from Apple and Samsung.
“The Pixel clearly targets the same top-end flagship space occupied by the Apple iPhone and top-end Samsung Galaxy lines, with retail pricing points that directly compete with these products.”
Andrew Rassweiler, senior director of cost benchmarking services for IHS Markit says, that the bill of materials (BOM) cost for the new Google Pixel XL 5.5-inch phone with 32 gigabytes (GB) of NAND flash memory comes to $278, according to a preliminary teardown estimate from IHS Markit, a world leader in critical information, analytics and solutions.
After including $7.75 in basic manufacturing costs, the total cost to manufacture the Google Pixel XL rises to $285.75. With an unsubsidized price of $769, the direct manufacturing cost-to-sales-price ratio is in line with those of direct competitors in the smartphone market, such as the Apple iPhone 7 Plus and the Samsung Galaxy S7 Edge. The Google Pixel is also available as a 5.0-inch model.
Google’s first independent design of smart phones Pixel profit margins show that the company not only in the idea of playing the Apple user base, but also aimed at the latter’s profits. Andrew Rassweiler, also notes that Pixel’s profit margins indicate that Google’s purchase price for parts is the same as for other tier one handset makers because, “They have as much pull as any of the big guys.”
This may not be a very accurate assumption however, because Apple can order parts in bulk, so to ensure the lowest price. Google can not, like Apple, make quantitative commitment to the supplier, the company’s new hardware executives say they’re aiming to accumulate such supply chain heft in the future.
We all know one of the selling points, if not “the” selling point of the Google Pixel is its camera which Google claims is the best in a smartphone. IHS estimates that the cost of all the Pixel XL camera components is $ 17.50, lower than the cost of the iPhone 7 camera system, which is estimated at $ 19, but has a similar function.
The priciest component inside of the Pixel XL is its 5.5-inch AMOLED QHD display by Samsung Electronics Co., coming in at $58 per unit, according to the IHS analysis. At $50 per unit is Qualcomm Inc.’s Snapdragon system-on-a-chip, the brains of the device. Like Apple, Google has tapped NXP Inc. for the phone’s near-field-communication payments chip and Samsung for storage.
It should be noted however that Google’s internal development costs, as well as the Android operating system on the development of various functions such as unlimited online storage and 24/7 live support that for sure add on the cost, are not reflected in the IHS analysis.
Google is already the second most profitable brand, but yet far behind Apple, and they’ve done this purely on software and services. Now that Google has jumped into the hardware game, with such profit margins, it can be a real threat to the most profitable company of the world, because who better knows the importance of brand value than Apple.
Until now, the highest profits per unit by an Android smartphone manufacturer has been by Sony. Surprising, I know. But hear this, compared to over $400 profit margin per unit for Apple, Sony only had about $23. So if Google’s Pixel phones succeed, as they seem to be doing, the Android scenario might change forever.
As a Google/Android fan-boy, as a customer, or as just you, what do you think of these high profit margins? What are your thoughts?
Via : CNET