Google's Hardware Strategy, Explained

Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s Google unit introduced this week multiple new hardware products that has some investors wondering how this fits in with the company's strategy.

Google's hardware strategy is to combine artificial intelligence capabilities in its software and hardware with machine learning expertise to better drive adoption, Bank of America's Justin Post commented in a report. On top of that, the new products, especially the Pixel 2 and 2 XL smartphones, are also on par with Apple Inc. (NASDAQ: AAPL)'s iPhone and Samsung's Galaxy S8 and S8 Plus in terms of quality.

But Google is also hoping it can win over iPhone and Samsung loyalists through key points of differentiation, such as camera and video/image capture and processing, the analyst said. Other features include unlimited cloud storage and Assistant integration.

Google made it very clear that it's now "serious" about competing in the hardware business, Post emphasized. While Google and its parent company Alphabet will see some incremental revenue from sales of its new devices, the bottom line impact will be "muted" given the low margin nature of the business.

On the other hand, increased user engagement with the Google ecosystem does bode well for the company's cross-platform data unification and drive incremental revenue through ad sales and search traffic.

Google's new hardware products could suggest there is "some strain" on existing partnerships with Android makers like Samsung given its "more aggressive" hardware plans.

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