The latest rumors point to Google (NASDAQ:GOOG) launching a 7-inch Nexus tablet in partnership with Asus.  The surprising part is that the tablet is speculated to be priced at $199, which directly places the Nexus in competition with Amazon’s (NASDAQ:AMZN) highly successful Kindle Fire tablet. Despite similar attributes, the two tablets are possibly going to cater to different markets, given the divergent objectives of their parent companies.
Fleshing out Google’s Plan
We estimate that the Google Nexus could face the similar costs as the Kindle Fire which implies that it would sell these devices at a loss. However, Amazon is in a position to recover these costs through e-content and e-commerce driven revenues. Google will need to have a similar cost recovery mechanism in place, whether it is through higher search market share on mobile devices or app downloads from the Android market. However, this may be a challenge since the Kindle Fire was always designed as a media consumption device while the Nexus is more of a Google-centric tablet where most features are expected to be free and open-sourced.
Motorola Picked Up for Patents Only
Another surprise thrown by this decision is the fact that Google chose Asus over its owned entity Motorola Mobility for its Nexus tablet. This prompts the question – did Google pay $12.5 billion purely for Motorola’s 17,000+ patent portfolio? The answer seems to be yes given Google’s recent decisions. However, Android’s OEM partners should see further relief from this as favorable treatment towards Motorola has always been a concern.
We currently have a price estimate of near $627 for Google’s stock, which is roughly 4% above the current market price.