Google’s Pixel XL nearly has same margins as iPhone 7, a hardware success

There was a lot skepticism when Google was about to launch a new range of smartphones replacing its Nexus series called the Pixel.

Consumers' skepticism was soon put to rest as the price seemed reasonable for the features and the camera of the phone. But the bigger questions loomed -- was the strategy right? Will the company make margins enough to challenge top dogs like Apple and Samsung?

If London-based market research agency, IHS, is to be believed then the Pixel XL has similar margins in terms of bill of materials (BOM) to the 5-inch screen size iPhone 7.

While the bill of materials (BOM) and calculated cost for manufacturing for an iPhone 7 equipped with 32 gigabytes (GB) of NAND flash memory sets back Apple by $224.80, the same calculation for Pixel sets back Google by $285.75.

This means that Apple, which sells the 32GB variant for $649, has a margin of $424.2. On the other hand, Google, which sells the larger sized Pixel XL at a staring price of $769, has a margin of $483.25 withour considering marketing and other costs.

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"Total BOM costs for the Google Pixel XL are, not surprisingly, in line with those of other competitors, because the supply base and specifications are very similar from phone to phone—whether it's an iPhone, a Galaxy-series phone or the Google Pixel XL," said Andrew Rassweiler, senior director of cost benchmarking services for IHS Markit. "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."

"The Google Pixel may also have an advantage for now over counterparts offered by Android rival Samsung, given the permanent withdrawal from the market of the Galaxy Note 7 after manufacturing defects caused the phone's batteries to explode," Rassweiler added.

Other analysts and experts also claim that the Google Pixel series is a success story for the internet giant. "In terms of hardware profitability and customer satisfaction in the Android ecosystem, the Pixel is a great success and directly competes wiith players like Apple and Samsung," Vishal Tripathi, research director at Gartner, said adding that the "margin on the phone is high even after taking into account other cost factors."

Tarun Pathak, senior analyst at Counterpoint Research, also back's Tripathi's theory but said that Google's Pixel success story in terms of hardware and specifications goes to HTC. "Google's decision to partner with Taiwanese handset-maker HTC was a great move and HTC has the expertise to create a phone which not only creates value for consumers but also keeps high margins for the company."