[Nexus 4 General] BarryH_GEG:
I have a hard time believing that any carrier provides access to their negotiated pricing with the phone manufacturers to all but a limited number of people. AT&T would kill to know what VZW was paying Samsung or HTC to use it in their own negotiations and putting that info in the hands of front-line employees (why would they possibly need it?) is completely unnecessary. If there’s a number in VZW’s sales system it’s most likely an internal number for accounting purposes. All the major U.S. carriers are public companies and their financials are posted on the shareholder sections of their websites. They all carry multi-billion dollar line items on their income statements for "subsidies." And that's the difference between what they pay Samsung ($450ish) and what they charge Joe Public ($199) for a SGS3. If their cost per device was near or below their net selling prices there wouldn't be ongoing multi-billion dollar subsidy lines on each of their balance sheets.

Here’s my guess on how the Nexus program works for companies Google chooses to build devices for them. It’s no different than any white label program where Company A contracts with Company B to build something on their behalf. In most cases, the company building the product (Samsung, LG, Asus) already has similar products so the cost of design, development, and production for the white label product will be low leveraging existing infrastructure. There’s a great deal of upfront expense and back-end risk in launching a new product. You pay all the development costs up front and hope it sells in the quantities you’ve projected. Google most likely covers the upfront costs or allows the manufacturer to re-use components and design from other similar products to keep those costs artificially low. They also commit to “X” amount of sales over “X” amount of time so the manufacturer is guaranteed a steady and set revenue stream. There are no sales and marketing expenses (Samsung spent $12B in advertising and promotion in 2012) as they are absorbed by Google. Google’s also probably subsidizing service, support, and returns which is a big number. In return for all this the manufacturer agrees to sell Google devices below their typical margin. The problem with that is all the device manufacturers are publically companies with shareholders. Margin is a measurement of forward movement and success. Seeing a margin drop in an earnings report is never a good thing. If LG expected the Optimus G to sell “X” and the N4 to sell “Y” the average margin would be “Z.” If the Optimus G flopped and the N4 started selling at twice the projected volume their average margin would tank.

That’s a fun explanation but it’s not probable simply because LG is second behind Samsung in market share (their huge in dumb phones) so it’s highly unlikely one huge success or flop would impact their overall margins that significantly. A second explanation could be priorities. If LG can produce “X” amount of devices and Google needs more than they originally committed for LG might not want to cut in to their own higher margin device production to produce more devices for Google. The third and most likely explanation is that LG’s a mess. When the G2X/O2X was released there were huge supply constraints globally because LG either underestimated demand or had production issues and wasn’t able to meet their sales commitments. Based on LG’s history in smartphones which has been spotty at best my guess is that their having component sourcing, production, and/or assembly related QC issues which is causing erratic quantities of devices to be shipped. And with a lower than desired margin getting the issues corrected probably isn’t their highest priority. The bottom line is we can have a blast speculating on what’s happening but we’ll never know for sure.