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November 4, 2016

Alphabet’s hardware inventory highlights growing Google strategy

Growing inventory includes smartphones, virtual reality headsets and the Nest unit.

By James Nunns

Google is stepping up its aim to be a regular name in the hardware market.

Alphabet, the parent company of Google, recently made its quarterly filing with the Securities and Exchange Commission in which it disclosed inventory of $559 million at the end of September.

What this reveals is the company’s growing hardware stockpiles, for example the Google Pixel which it launched at the start of October.

By way of comparison, Alphabet reported that its inventory was $491 million at the end of 2015.

Google Pixel Smartphone

The Pixel phone is one of Google’s investments into the hardware market.

The inventory isn’t solely for the Google Pixel as it also includes other hardware such as gadgets for the Nest unit.

Selling hardware isn’t something new for Google, which has been doing it for several years through devices such as the Nexus smartphones, however, the company had typically relied upon hardware partners to take care of most of the design and manufacturing. This meant that Google was not responsible for the inventory risk, which it now is.

As Google looks to diversify its portfolio by increasingly looking at the hardware market with Google Home, a virtual reality headset and its smartphone, some analysts have questioned whether this could thin the company’s margins.

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UBS analyst Eric Sheridan wrote in a note to investors last month: “While Google has priced many of the new devices competitively with others that exist today, we view go-to-market as a clear hurdle to wide acceptance, which will require investments in brand, marketing and distribution to overcome.”

It is that expense of marketing and distribution that may impact the company’s margins.

The company has only just started revealing more details about in its financial reports, which is part of a move to be a more open company. Previously it had reported its inventory under “other assets” and it still doesn’t reveal the sales of its gadgets.

The increased investment in hardware isn’t a sign that the company is moving away from its software portfolio. The company recently revealed that it is revamping its Google Play Store in order to help developers to build their business.

Updates include the addition of artificial intelligence recommendation and support for more payment platforms, while it is also expanding to include new platforms such as wearable devices, virtual reality headsets and Google’s Chromebook laptops.

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