The $199 Nexus 7 8 GB variant costs exactly $151.75 to build while the $249 Nexus 7 16 GB variant costs $159.25. This implies gross margins of nearly 25% to 35% for the device, which are closer to what Apple makes on each iPad.
The numbers are from iSuppli, but if this is really the case, a $199, 7.85 inch iPad would be a no-brainer for Apple. Even just with their flash memory deals, they could probably provide double the Nexus 7’s storage while keeping their expected margins. They might even do better if Gruber is right about them using the same panels as the 3GS.
Forbes is trying to say that the Kindle Fire and Nexus 7 are forcing Apple to make a smaller iPad. If all the numbers are correct, it just seems like Apple would be stupid not to make one. There’s a big difference between seizing an opportunity and the competition forcing your hand.