If a recent estimation from Morgan Stanley is to be believed then Google is on track to sell approximately 3 million Pixel phones across the globe before the year’s end. If achieved, Google will bring in $2 Billion in revenue, not bad work if you can get it!
The success of the Pixel seems to have even caught Google by surprise, with stock and availability still an issue in some markets, then again that’s a regular occurrence for Google hardware. The Pixel may have just benefited of a perfect storm in the smartphone market.
With the Note 7 being removed from the market, the iPhone 7 being nothing but a 2nd refresh of their 2014 model, rather than keeping to the tick-tock cycle, the Pixel seems to have entered a market with people searching for their next high priced smartphone.
With both Samsung Note and iPhone buyers already trained to pay too much for their devices and Google’s existing fan base jumping on board the device has clearly sold well.
Morgan Stanley is predicting Google will sell 5 – 6 million Pixel phones next year bringing in an additional $3.8 Billion in revenue. Looking at the bank’s estimates of gross margin, it’s interesting to see just how much of a markup the pixels have on them, and just how little the retailers make on them.
Unsurprisingly the Pixel XL 128 GB is the most profitable with a 25% margin, and considering the inflated Australian sale price most likely higher here. This apparently makes the Pixel almost 1/2 as profitable as an iPhone on a unit by unit basis. We’re sure that the cost to manufacture Pixels will reduce the more experience Google gets in the game.
We’re hoping Google will at least share those savings with consumers, however, it seems Google has ‘indexed’ the price of the Pixel to the iPhone, perhaps in an attempt to make it appear as premium and not the ‘cheap’ alternative. As such we really don’t expect Google to stop price gouging consumers.
In a market where Apple is sucking out over 90% of the global smartphone profits with their over 40% margins and high price tags, it just doesn’t seem like the commoditisation of the smartphone market is going to translate into affordable consumer tech anytime soon.
This is the effect that a lack of competition has on a market, whilst Apple may not have the dominant shipments they do attract the majority of the profits and obviously high-end buyers. Until this dominance can be eroded we’re not likely to see a significant drop in “flagship” pricing.
If that really is their Gross Profit, then it is very low!! Most businesses look at + 40% for GP.
“As such we really don’t expect Google to stop price gouging consumers”
If they are only making circa 25% GP – they are def not price gouging! Remember that GP ins only on the cost of making and supplying the good… it doesn’t take into consideration overheads such as support labour, buildings, services etc etc… let alone marketing etc.
Trust me… at that GP, I would be surprised if Google is making much money out of the phones at all.
Do you seriously think the COGS is $230 on a Pixel?
Warehousing, transport, warranty, etc? It doesn’t include marketing and R&D (nor should it). They would be hard pressed to reach $100, probably less.
My guess is these are dodgy figures from Morgan Stanley. Either that or Google needs to shoot a manager.
Even for Pixel, which they have been pimping, I’d expect a practical number closer to $50-$60
Yeah for sure… The S7 costs about $250…iPhone 7 about $220… So $230 is about right I would say
The BoM for an iphone 7 is about $220 – but this line is talking about the other COGS – and the numbers for that are much lower. Articles suggest it’s ~$90 for the iphone. I’d suggest that it’s lower for pixel; hence $50-60.
Pretty good for a first effort. Seems like their marketing push has worked, but I wonder what sort of sales numbers Google had expected internally.
The top tier manufacturers will always find a way to justify their high prices. In the mean time, the middle tier is getting seriously good – the OnePlus 3T being a good example.
As an aside Duncan, some stats on how many Galaxy S7s and iPhone 7’s have been sold would be good for a bit of context.