Google with its Pixel and Pixel XL smartphones is looking to do what Apple has been doing for years - integrate in-house software and hardware to build a pure-experience smartphone. Leveraging from its Android fan base, Google aims to provide the best Android experience with top-notch hardware. Hence, the pricing of the smartphone is at par with other premium handsets, if not more. Now, IHS Markit has torn down the Pixel XL alongside a complete bill of materials (BOM), and reports that the cost-to-sales-price ratio is similar to the Apple iPhone 7 Plus and Samsung Galaxy S7 Edge.
IHS Markit claims the 32GB Pixel XL smartphones has a total bill of materials cost of $285.75. However the tech giant charges $769 for it, gaining a maximum profit margin of $485.35 per model. The report states that this pricing point directly competes with top-end flagships.
What's more interesting is the fact that Google makes more margin on the Pixel XL than Apple does on the iPhone 7 ($424), going by the data IHS Markit released for the latest iPhone in September. Of course, this is before the marketing, distribution and other costs are involved. More importantly, the Pixel XL has a 5.5-inch screen and a bigger body, which would mean that its bill of materials would likely be slightly more than the similar costs for iPhone 7, which has a 4.7-inch display and smaller screen.
Senior director of cost benchmarking for IHS Markit, Andrew Rassweiler said in the report, "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."
This high profit margin clearly hints at the company's level of trust on its Pixel phones, and is looking to battle Apple and Samsung head-on in the profit market. Rassweiler also notes that Google is getting the components at the same price as other big manufacturers in the market.
The report states that the highest costing component of the Pixel phones is the display that it buys from Samsung for $58. The Gorilla Glass 4 and aluminium enclosure costs $35, and the camera is claimed to cost $17.50. The report states that Apple spends $19 for the iPhone 7's camera system.
The profit margin is however much lesser than what the BOM suggests. The margin doesn't include internal development, software optimisation, R&D, marketing and other supply costs. Google is spending a lot on advertising the smartphones online and offline around the world. It is leveraging from its search engine service, and is pushing pop-ups ads on the Google homepage as well.
Just like Foxconn assembles Apple's iPhone, HTC is doing the same work for Google. The executives take the reins when it came to designing and engineering, and HTC just worked on Google's orders to deliver the finished product.
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