Business Is Booming For Google Nexus 7 Tablets

| About: Alphabet Inc. (GOOG)

It turns out that Google (NASDAQ:GOOG) had underestimated the demand for its Nexus 7 tablets and the 16-gigabyte version has already sold out. The 8-gigabyte version of the tablet did not sell as good as the 16-gigabyte version and this could be because the buyers are concerned with the inability to upgrade their tablets upon buying. Interestingly enough, the capability to use Google's cloud service did not make a difference. Google's cloud service allows people to store some of their content outside of their hard disk space, saving space in the hard disk for other things.

Stores other than Google's online store carry this tablet too; however the supplies are very limited. While the demand is still hot, Google will have to have many of its tablets produced and distributed quickly. If the company doesn't act quickly, the demand might cool off or get redirected to products of the competitors. Currently, the suggested retail price of these tablets is $199 for the 8-gigabyte version and $249 for the 16-gigabyte version. Google's profit margin on these tablets will be very limited, and the company hopes to make money off the advertisement and selling content (e.g., movies, TV shows and music) rather than the hardware. The concept is very similar to the Android model in mobile phones.

It's interesting to note that during the same time period, Microsoft (NASDAQ:MSFT) also announced its new tablet; however the company has yet to launch it for consumers to buy. The time gap between announcing and actually launching the tablets may hurt the demand and Google was able to avoid this by launching its product soon after announcing it. Of course, we won't know the relationship between launching delays and market demand until after Microsoft launches its tablet down the road.

The strong demand for Google's tablet is not limited to the U.S. either. The Guardian reports that the demand for the tablet in the UK is just as strong as the demand in the U.S., noting that Tesco no longer takes orders for the tablets as it ran out already. The tablets are produced by Google's manufacturing partner Asus and it is reported that Google already ordered Asus to ramp up the production.

While the tablets have sold a lot of copies, this doesn't mean that the buyers are completely happy with the product. Early reviews pointed out problems regarding the display functions of the tablets. Furthermore, many people reported problems regarding the touch screen of the tablet. Apparently, some of these issues will require software updates while others will require hardware changes. Some customers might not mind the problems since the device is very cheap, but many consumers will care, possibly hurting the sales growth for the device.

It is said that Apple (NASDAQ:AAPL) has been working on a mini-iPad ever since Google announced its tablet. Currently Apple's iPad is said to be superior to other tablets; however its high price keeps many price-sensitive customers from buying it. A mini-iPad would cost much less than a regular one, and it would be able to regain some of the market share Apple lost by offering more competitive pricing. Apple's brand name and beautiful design will continue to attract consumers as long as its prices are within reachable range.

Apart from Apple and Microsoft, Amazon is also working on a new tablet. The company's initial tablets received average demand, mostly due to their cheap prices. Similar to Google's tablets, Amazon's tablets are also low-margin products, and similar to Google, Amazon also expects to make money from selling content rather than the hardware itself. Google's tablet is said to have superior hardware compared with Amazon's current tablet Kindle Fire as it enjoys Nvidia Tegra 3 quad core and 1 GB ram.

Earlier, Google reported that it expected to sell between 2 and 3 million Nexus 7 tables. This was in June. Since then, the company hasn't reported any numbers regarding how well the product is selling. From the looks of it, the company will be able to sell far more copies than it expected, as long as it can meet the demand fast enough.

Google's Android operating system turned into a great success for the company, earning it a huge market share in the mobile device market. Google is likely to enjoy a similar success with its tablet. If Microsoft, Apple or Amazon launch their next tablet quickly, this may hurt sales of Google's tablet; however if it doesn't happen, the strong demand is likely to continue.

I've been bullish on Google ever since its IPO. The company has been performing greatly, piling up cash and adding to its success every year. The company is one of the most innovative companies in the history. Google is a profit-oriented company and it often cancels projects that don't yield much profit regardless of how popular those products are. One such example is iGoogle. Given how profit-oriented the company is, I am sure it will act quickly to increase production of Nexus 7 tablets and make them available for consumers rapidly before the demand cools down. Google's determination for profits coupled with its innovation and strong talent makes it difficult not to be bullish with the company.

Disclosure: I am long GOOG, AAPL, MSFT.

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