A few days ago we had an initial prediction of how much it costs to build the Nexus 7 from iFixit, which said that the components alone should cost around $184. IHS iSuppli did an actual Nexus 7 teardown and evaluated the cost of the components to be around $152, for the 8 GB Nexus 7, and only $7.5 more for the 16 GB version.
Andrew Rassweiler, who leads the teardown team at IHS iSuppli thinks Google will indeed break even on the 8 GB $199 version, just like Google said they would, but they will get a nice profit on the 16 GB $249 version. This was pretty obvious from day one, because 8GB of storage doesn’t cost $50, but it’s a nice way for Google to round up the numbers, and increase their average profit they get from both versions, thanks to the 16 GB one.
“Like Apple, Google realizes it can boost its profit margin by offering more memory at a stair-step price point. It’s getting $50 more at retail for only $7.50 more in hardware cost, which sends $42.50 per unit straight to the bottom line.”
The main differences between the Nexus 7 and Kindle Fire are the better IPS display with a higher 1280×800 HD resolution (vs 1024×600 for Kindle Fire), quad core Tegra 3 processor (vs dual core OMAP 4430), 1 GB of RAM (vs 512 MB), NFC, a front facing camera, as well as a gyroscope that was built right into the accelerometer.
So there are quite a few extras compared to the Kindle Fire, and that’s besides the higher build quality of the device. IHS iSuppli thinks that all of those should only add an extra $18 to the cost of the Kindle Fire. However, they don’t mention if this is compared to a recent evaluation of the Kindle Fire’s components, or to the original one that was done last year. The reason why this is important is because Kindle Fire’s components may have become significantly cheaper since then.
We should get a clear picture of how Nexus 7 fares against the upcoming Kindle Fire 2 in the coming weeks. But I don’t think having slightly better hardware would be a strong enough reason for an Android user to want to buy the Kindle Fire 2 over the Nexus 7. The latter, and not the former has the “real” Android OS, more and better updates from Google, and the full app store for all Android apps.