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Analysts: Pixel launch 1st test of Google's hardware bet

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Analysts: Pixel launch 1st test of Google's hardware bet

Alphabet Inc. unit Google Inc. is expected to introduce a new line of devices Oct. 4, marking the first test of the tech giant's new hardware strategy, which involved the acquisition of key hardware talent and intellectual property from HTC Corp.

According to several reports, Google will unveil two new Pixel phones — one larger than the other — a new high-end Chromebook, a mini version of Google's Home smart speaker and an updated Daydream virtual-reality setup.

While Google is a market leader in smartphone operating systems, it has failed to crack the hardware space. As a result, it conceded significant mobile market share to Apple Inc.

For Google to be able to compete with Apple in mobile, having a greater say in the premium end of the device market is essential.

"There is little doubt that Google will be hoping these devices continue to showcase the Android user experience when it has more control on the hardware side," according to London-based Imran Choudhary, director technology at market research company GfK.

The smartphone market is currently dominated by Samsung and Apple. A previous approach of inorganically entering the hardware business failed when Google had to sell off Motorola to Lenovo at a big discount.

Since then, Google worked with device manufacturing partners like Huawei, HTC and LG, but the approach limited its lineup. Pixel has been the closest to the kind of smartphone Google wants to develop.

However, "they have not generated much revenue," according to Greg Potter, an analyst at Kagan, a media research group within S&P Global Market Intelligence.

Looking to expand

The HTC acquisition means that making own hardware would be more cost-efficient and shows how serious Google is about hardware.

The deal could also be an indication that the company is looking to expand its hardware lineup, Potter said in an interview.

"[The HTC] investment suggests that Google will be producing smartphones for the foreseeable future and wanted to stop outsourcing design and bring it in-house in order to realize cost savings," he said.

With the price of Apple's iPhone X crossing the $1,000 mark, pricing may play a key role. If Google prices the XL higher, Choudhary expects two things to happen.

"Firstly, it allows the XL to play in the upper end of the premium tier which is where other [original equipment manufacturers] have recently been making surges," he said, and "secondly, it will help taper demand as there could be some supply constraints on getting the XL to the market."

A big challenge for Google will be to increase its sales volume.

"Notably, Google must be prepared to spend significant amounts on marketing and channel incentives and be prepared to follow up the initial Pixel models with further strong smartphone designs," IHS Markit technology analyst Ying Yang said in a research report.

Partnerships may also be crucial.

If Google wants to move the Pixel from being a device for early adopters to the mass market, Choudhary said it will need to partner with networks and retailers in local markets.

It will also have to make sure the device is "communicated clearly" to consumers who may be less tech-savvy, particularly since many developed markets are seeing stagnant growth with consumers hanging on to their handsets, he added.

"Google will have to be compelling in what they offer to tempt consumers in general to dip back into the handset market," Choudhary said.

The Google Pixel 2 launch event will start at noon ET.