The new Nexus 7 tablet unveiled recently by Google is, as you all will know, being manufactured by ASUS. The $199 tablet owes a lot of its attractiveness to the keen price it is being sold for. Now ASUS admit that the Nexus 7 is being sold at cost price.
In a report on Focus Taiwan, Credit Suisse analyst Thompson Wu asks the obvious question “Nexus selling at cost should not be a surprise to the market, but it begs the question why Asustek co-developed this product”. But he thinks he knows the answer… “We believe Asustek realizes that in a market where OEMs have limited opportunity to differentiate without content and operating systems, it's demonstrating its edge via research and development and innovation, while building upon its brand value”. However though the above might be a wise move by ASUS Mr Wu has revised the 2Q revenue growth forecast down by five per cent.
ASUS is looking longer term with the aspiration to build up its brand name. Preferred brands have the ability to charge more for their products, indeed it can go much further, some brands develop into prestige brands and can charge huge mark-ups on their products. If the Nexus 7 devices prove solid and reliable in end user’s hands it will introduce a lot of customers to the ASUS brand who might look to them for their next smartphone, monitor, computer system etc.
Another factor may work in ASUS’s favour. When something goes into production it is usually cheaper to make lots and lots of them – the economies of scale come into play. So over the lifetime of the Nexus 7, should it be a success, ASUS will be able to make the devices for lower costs while the price to the end users may reduce at a slower rate. Also computers and tech products usually get cheaper to make because of advances in miniaturisation and manufacturing techniques. Good luck to ASUS for taking this chance.
