Apple doesn't make much of their hardware either, just the A5 chip I believe. The rest gets sourced out to other companies that actually make stuff.
Apple does make money of their hardware. Apple only makes software to sell their hardware. They control it all, from manufacturing, to software, to price.
Google makes software, and even takes a loss, because they make it up on the back end. Apple makes money on EVERY part of the device. Google's plan by giving the software away, was so that manufacturers could make low end and high end device. They don't care how much the manufacturers make, they only want them to get google services out there. Whether we buy a $99 device or a $299 device, Google's plan was to get an android device into a billion hands worldwide. If they make $10 a year on each phone through the services, that's a $10 billion a year operation. And they don't need to be involved in any part of it, except handing out the software. Quite genius actually. And it's working out quite well for them.
By us buying Android phones over iPhones, it takes a bigger chunk out of Apples pockets. They don't make money on services or software. They rely on the services and software to sell their hardware. If they don't sell hardware, they don't make money. THAT is why they control so much of the hardware process, and require a cut of service fees from the carriers. Carriers actually make more money off of Android as well, since google doesn't take a cut of the data plan like Apple does. THIS is a serious threat to Apple and why they fight so hard with patent legal battles.