Microsoft's Surface RT 'more profitable' than Apple's iPad

Microsoft has managed to build the Surface RT tablet in such a way that it not only competes directly against Apple's iPad, but also has a higher profit margin than Apple's flagship tablet.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

A teardown of Microsoft's new Surface RT tablet suggests that it generates a healthier profit margin than Apple does with its low-end iPad.

The teardown, carried out by IHS iSuppli, the Surface RT (32GB) tablet carries a bill of materials of $271, and an additional $13 manufacturing costs. This brings the total cost of manufacturing to $284.

The most expensive component is, as expected, the screen, which costs Microsoft an estimated $101. The 32GB NAND storage and the 2GB DRAM adds another $34 to the cost, and the Nvidia Tegra 3 processor another $21.50.


With an estimated total bill of materials and manufacturing cost of $284, and selling for $599 (a price which includes the Touch Cover keyboard), IHS say that the Surface RT generates profits that are, in percentage terms, greater than Apple's low-end iPad (16GB, Wi-Fi). Even at a price of $499 (without the Touch Cover keyboard), the Surface RT still generates a profit margin that is greater than the low-end iPad, both in percentage terms, and on a per-unit basis.

In emailed remarks, IHS analyst Andrew Rassweiler explained the importance of the high profit margin: 

"The Surface represents a key element in Microsoft’s strategy to transform itself from a software maker into a devices and services provider," said Rassweiler. "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."

While Microsoft has made a big deal of the keyboard that comes with the Surface RT tablet, Apple has distanced itself from associating the iPad with a keyboard. While there are numerous third-party keyboards for the iPad, Apple has not yet released an iPad-specific keyboard.

Not only does the healthy profit margins bring more dollars in to Microsoft, but it also gives the company wiggle-room if it ever has to cut prices in order to invigorate sales.

While IHS thinks that high profit margins are good, some analysts are not convinced. Sterne Agee analyst Shaw Wu believes that Microsoft hasn't been aggressive enough it its pricing of the Surface tablet, and that the $499 price tag for the base model is too high, and therefore "could prove to be a fatal mistake and relegate it to be a niche No. 4 or No. 5 player."

An iFixit teardown of the Surface RT tablet revealed a device that is easier to take apart and repair than the iPad, with several components being modular and replaceable without requiring desoldering. The battery inside the Surface RT -- a consumable that will need replacing after a few years -- is also easy to remove once the tablet is opened.

Image Gallery: Microsoft Surface tablet

Image source: IHS iSuppli.

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