Yeah, these prices look almost too good to be true. Other Android vendors may be getting some serious indigestion from this.
If Google are determined to sell high quality devices at cost to gain market share, and can make the general public aware of this (non-trivial), Apple may find itself as the sole company making big profits from actually selling phone hardware.
That said, only Samsung with their Galaxy brand have come anywhere near the marketing impact of the iPhone, so if Google really want to make an impression, they're going to need market these devices at a level that they've never managed before.
It's Samsung's own fault they haven't got the 4.2 update out properly yet.
Other companies must sell their devices to make a profit, google does not. As long as they are close to making even on device cost they can make up for and exceed it elsewhere.
Although Google's profit's are in the billions, so are their users. Their profit per user is actually pretty small to be running an at a loss hardware device.
And we can't pretend that people don't use their ecosystem on other devices anyway.
I honestly have no clue at what Google are trying to achieve sometimes. I mean it makes sense for Amazon, but Google? Not so much.
Apple's gross margins on its devices, essentially the selling price less the manufacturing costs, is about 30-40% company-wide. That translates into an operating margin (which includes all costs) in the 20-30% range.
That's high for a consumer electronics company, but not as high as the $700 - $175 comparison makes it sound.
Of course there are other expenses (those $10M Apple Stores don't build themselves), but you're incorrect about the operating margin. For Q4 2012 AAPL had an operating margin of 34% (gross margin was 40%).
That's been Apple's strategy forever, people who want more have to pay a lot more than what it's really worth. I can remember the entry level iBook (during the PPC days) being sold with goddamn combo DVD reader/CD writer drives in a time where EVERY SINGLE PC LAPTOP SOLD, even the cheapest crap, had a DVD writer. Just to push people onto the higher profit margin.
I love Apple products but they really know how to milk their customers dry. Hacker News's audience wouldn't fall for that, but I can remember the markup on ram, when they still sold devices with 1 or 2gb of ram when the competition had 4gb on their cheapest stuff, with huge markups on the online apple store if you ordered a laptop with more ram. People here know how to put more ram in their computers and know not to order a macbook with "Apple's ram" (... a traditional thing that is going to die with the retina mbp and its soldered ram), but the average joe just got ripped off hardcore.
If you only look at their entry products, like the 16gb iPhone, the 21" iMac, the 11" MBA, yeah, Apple seems reasonable. Any other Apple product ? the margins on those things is something no one else could pull off without getting lynched.
The point of my post wasn't to defend Apple, it was to show that comparing the selling price and bill of materials figures to highlight profit is simplistic and wrong. What actually matters is gross margin and operating margin, both of which are made public so there's no need to refer to the estimated BoM as the OP did. This applies to all companies, the all-too-common misunderstanding of BoM figures is a pet hate of mine.
Apple completely changed the way I look at mobile devices. My first smartphone and tablet were the iPhone and iPad. I just wish they'd be more reasonable on some points, but they're obviously too successful to change their strategy unless a strong competitor shows up (and I hope that Google's strategy with the Nexus pays off).
I also am part of those who switched to Android but think that Apple had some reasonable arguments against Samsung that made them go wild against them. When you go as far as to make the charger look like an Apple charger you know there's something wrong going on. Samsung clearly tried to ride on the popularity of Apple products by making it look as much as possible as the iPhone and iPad, be it in the packaging, included accessories, look, early TouchWiz releases... there's a reason why TouchWiz on the S3 isn't like TouchWiz on the first Galaxy phones.. The customization on early Samsung android devices went too far toward Apple's direction. Even the "hardware" buttons, making the home button prominent and the other two android buttons more invisible in the design, and still keeping the home button as fully hardware on the S3 rather than going onscreen or capacitive like the other android OEMs.
Apple makes great products, but I feel like they're trying too much to milk us as much as they can.
I agree though, Apple's price discrimination may be understandable but as a customer it can really grind sometimes. When I went for an iPad I decided on the 16GB model for cost reasons and regretted it ever since, but the price jump to the 32GB was big enough that I shied away from it. It was annoying that the premium for a component that cost a fraction of what they charged created an uncomfortable dilemma for me that as a customer I shouldn't really have faced.
In all I'm excited about the level of competition, with MS's Surface bringing in another interesting angle, and I hope it continues for a long time. For one, though I have an iPad already I'm pretty sure I'm going to be picking up a Nexus 7 soon.
This is a pretty common case of price discrimination. http://en.wikipedia.org/wiki/Price_discrimination
Apple is certainly not the only company that does it. However they do commonly have a higher profit margin than their competitors.
"ZTE U950 smartphone packs a 1.3GHz Tegra 3 chip, 1GB of RAM, 4GB of internal storage and a 2,000mAh battery beneath the 4.3-inch display."
That is not a good situation for either Android or Google - and except Google breaking the price, there is little else that can revive the market a little bit.
She's hugely disappointed with it and refuses to buy any more Samsung products. (It doesn't help that she refuses to let me root it and install CyanogenMod, but you don't expect to have to do that if you're paying the equivalent of over $600 US for a phone)
I know that Asus Transformer Primes sold in China did not come with Google services, either, though buyers quickly learned that using a US/Taiwan/International update file would restore functionality fairly easily.
Back in June... and only for the $199 model...
http://www.isuppli.com/Teardowns/News/pages/Low-End-Google-N...
Sure, if you add in the $25 Google play credit, and leave room for some margin for Asus (since Google is just a reseller), you might get close to breaking even, but as far as I can find, the Nexus 7 was never sold at a loss.
They also get a much higher profit margin on the 16gb (now the 32gb for the Nexus 7) than on the 8gb which is what a lot of people will buy. There isn't a $50 cost in manufacturing a device with 16gb more of storage but there is a $50 markup for the customers who want more local storage. Storage is much, much cheaper than what you're paying for when you buy a tablet or phone with bigger SSDs. The profit margins on the 64gb iPhones are INSANE compared to the profit margins on the 16gb.
The base, $300 Nexus 4 is going to have a paltry 8gb. Most of the heavy users are going to spend the $50 more for the 16gb, while the $300 will still be there to please those who have to be more careful with their money.