Google set to reap bumper profits on Nexus 7 tablets

Google stands to make a $81.25 profit on each of its 16GB Nexus 7 tablets, according to a tear-down study from research firm IHS.

The analyst firm said that each of Google's 16GB tablet models will cost the company $166.75 to build, while the 8GB model will cost $159.25 in parts and manufacturing costs. Google is offering the 8GB model for $199, while the 16GB Nexus 7 retails for $250.

By and large, the most expensive component on the Nexus 7 is the touch-screen and display, which costs $62 per unit. Other costly components include a $21 processor and $20 worth of various electrical and mechanical components.

Researchers note that the company is making a healthy mark up on the higher end device. By adding just $7.50 worth of additional memory, Google is able to add 42.50 to its profit marging on each 16GB Nexus 7 it sells.

IHS analysts liken Google's strategy of inflating profits with higher memory options to the approach Apple makes with its iPad pricing models. Both firms are able to draw higher price points by adding relatively cheap amounts of flash storage.

Though Google is following Apple's lead with the Nexus 7, analysts believe that the Kindle Fire will be the Nexus 7's stiffest competition in the tablet space.

"The two platforms are similar in many regards, including the use of the 7in display, the eschewing of 4G wireless connections in favour of Wi-Fi, support for virtually identical battery lives and the same pricing for the entry-level models," noted IHS analyst and senior director of teardown services Andrew Rassweiler.

"However, the Nexus 7 has superior specifications to the Kindle Fire, giving it a more attractive feature set that may make it more desirable to consumers."

Both the Nexus 7 and Kindle Fire could soon see new competition in the market, however. Multiple reports have suggested that Apple will soon be debuting a 7in iPad model to challenge in the small-screen tablet space.