Financial firm Morgan Stanley has reportedly forecast Google’s new Pixel smartphone will rake in nearly $4 billion in revenue for the tech giant next year.
According to a report in Business Insider, the $3.8 billion revenue prediction is based on the assumption that Google will sell between 5 million and 6 million Pixel devices in 2017. That revenue will come on top of an estimated $2 billion from the expected sale of around 3 million Pixels in the last three months of this year, Morgan Stanley said.
The firm’s model indicates the Pixel will bring in around a 22 percent to 25 percent gross profit margin, depending on the model (i.e., the standard Pixel or the Pixel XL). Back in October, an IHS Markit teardown indicated the total bill of materials for the 32 GB Pixel XL came in at just $278 with an additional $7.75 tacked on for manufacturing costs. That same Pixel model retails for $769, IHS Markit noted.
While these figures are certainly significant, they represent just a fraction of the revenue prominent rival Apple pulls in with its iPhone devices. In its fiscal 2016 year, for example, Apple sold 211.8 million iPhones and generated $136.7 billion in revenue.
According to IHS Markit, Apple spends around $225 on materials and the manufacture of the 32 GB iPhone 7, which retails at $649.
It looks like Google, though, is aiming to catch up to Apple by borrowing some pages out of its playbook – namely the ones on vertical integration.
“Google has long used its Nexus line to serve what it deems to be an exemplary demonstration of Android hardware design. Now, some eight years after the launch of the first version of Android, and with Apple iOS and Google Android settled as the dominant platforms, Google has ‘tripled down’ on Android by vertically integrating its smartphone design,” Wayne Lam, principal analyst of smartphone electronics for IHS Markit, said. “This vertical integration of hardware and software is a product strategy taken straight out of Apple’s playbook … Not only is Google through the Pixel directly competing with Apple, but also rivaling its own Android ecosystem partners in introducing new premium hardware to compete with the likes of Samsung, Huawei, and LG.”
Morgan Stanley noted Google has the ability to generate profit beyond that generated by sales of the Pixel via “Android user monetization.” While iOS users currently spend more than their Android counterparts, readily available and easy-to-use features on the Pixel such as Google Assistant, Android Pay, and Google Daydream could facilitate increased spending and open the door to more monetization through increased ad revenue.
