Microsoft Surface: More profit per tablet than Apple's iPad?
Microsoft's Surface with Windows RT tablet will bring in a higher profit-per-tablet sold than Apple's iPad, according to a teardown by IHS iSuppli.
The research firm offered a total bill of materials estimate on Monday, but has since released a more detailed breakdown of each component in Microsoft's tablet. The total cost to build the Surface, with $13 in manufacturing costs included, is $284, IHS claims.
“The Surface represents a key element in Microsoft’s strategy to transform itself from a software maker into a devices-and-services provider,” IHS analyst Andrew Rassweiler said in a statement. “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.
Here's the part-by-part breakdown from IHS:
- 2GB of DDR3 RAM and 32GB of flash storage: $34
- 10.6-inch, 1366-by-768 resolution display and touch screen: $101
- Nvidia Tegra 3 processor: $21.50
- 1-megapixel 720 camera (front and back): $5
- Interface sensors and combo module: $20
- Power management: $8
- 31.5 watt hour Li-Polymer battery: $20
- Mechanical, electro-mechanical and other components: $36
- Box contents: $25
Strangely, IHS doesn't include Microsoft's Touch Cover in its breakdown chart, even though the teardown is for the $599 Surface with cover included.
Instead, IHS lists this piece of hardware separately, estimating that it costs between $16 and $18 to make. The Touch Cover, a screen protector that doubles as a slim, touch-sensitive keyboard, integrates a printed circuit board assembly with numerous chips of its own, including a microcontroller from Freescale and a touchscreen controller from Atmel.
With or without the Touch Cover, IHS says Microsoft's profit from the Surface is greater, in percentage, than Apple's margin on the basic 16GB iPad.
What the numbers mean
As I wrote Monday, the high margin will likely keep other PC makers happy, since they won't have to worry about Microsoft undercutting them. It also allows Microsoft to establish the Surface as a premium product that shoppers should compare directly to the iPad. If nothing else, it's a confident move.
Some commenters in Monday's story suggested that Microsoft may not profit much after the cost of research, development, and marketing. Keep in mind, though, that whatever Microsoft spends on Surface marketing is also inherently marketing for the Windows 8/Windows RT operating systems, which was going to happen anyway. And although R&D costs will take a bite out of profits, that's a reality for every company that creates something new.
So while the estimates from IHS don't truly represent how much money Microsoft will make on Surface, they do provide a general sense of how profitable each tablet will be. If the firm's figures are accurate, the answer is “very.”