Report: Microsoft’s Surface RT tablet is more profitable than the iPad

by David Needle

November 5 2012

Microsoft has priced the Surface RT tablet to be profitable from the start.
Microsoft has priced the Surface RT tablet to be profitable from the start.

Most recent competitors to the iPad have tried to compete at a lower price even if it meant sacrificing profit margins. But a new report shows Microsoft is taking a very different approach with its new Surface RT tablet.

A preliminary teardown estimate by IHS released today shows the Surface RT with optional Touch Cover has a bill of materials (BOM) of $271 -- $284 when the $13 manufacturing cost is added. That’s for a $599 model including Touch Cover.

Back in March, IHS estimated that a new, 4G capable iPad with Retina display and 16GB had a BOM of $325. Apple just released a newer version of the iPad with a faster processor and other new parts. IHS said in an email to TabTimes that it's preliminary estimated BOM for a Wi-Fi-only, 32GB new iPad with Retina display is $293 versus $255 for the Surface Tablet with 32GB (both selling at retail for $599. 

“The Surface represents a key element in Microsoft’s strategy to transform itself from a software maker into a devices and services provider,” said Andrew Rassweiler, senior principal analyst of teardown services at IHS.

“Key to this strategy is offering hardware products that generate high profits on their own, similar to what Apple has achieved with its iPad line. From a hardware perspective Microsoft has succeeded with the Surface, offering an impressive tablet that is more profitable, on a percentage basis, than even the lucrative iPad based on current retail pricing.”

IHS also estimates that even at a price of $499 without the Touch Cover, Microsoft will generate a profit margin that is greater than the low-end iPad, in percentage terms and on a per-unit basis.

These teardown estimates do not include such costs as R&D and marketing, which in the case of Apple and Microsoft is substantial.

An enterprise edge to Surface RT?

While there are plenty of third party products available, Apple doesn’t offer its own keyboard accessory for the iPad, though it does offer a “Smart Cover.”

IHS notes that Microsoft’s Touch Cover both protects and performs as a a full-function keyboard with a touchpad at the bottom, so it can be used in much the same way as a notebook PC.

“The Touch Cover represents a best-of-both-worlds approach for the Surface, giving it the most attractive features of both notebook PCs and media tablets,” Rassweiler said.

“This feature differentiates the Surface from the iPad. The end result for Microsoft is a very compelling product that is impressive. It’s also clearly more Microsoft friendly—so enterprises and major users of Microsoft Office likely will gravitate to this very competent product as a possible substitute to conventional notebook PCs when used for travel.”

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