back to article Surface more profitable than iPad

Microsoft's Windows RT-based Surface tablet - designed to compete with the full sized Apple iPad - has a larger profit margin than its rival, a teardown analysis has revealed. The Surface, with its minimum 32GB of Flash storage and optional Touch Cover, has a bill of materials (BoM) that totals $271. Chuck in an additional $13 …

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Joke

Cut corners

It's because they cut back on rounded corners

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Anonymous Coward

Re: Cut corners

More likely the screen which is bound to be up to 50% cheaper.

There's plenty of scope for price cuts then.

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Same as Apple

Of course to anyone with any sense, profitability is not a good point for everyone except the shareholders. It's proof that the product is overpriced, selling cheap components at high prices, as opposed to products with low or zero profit, where you get all of what you pay for, and any savings are passed onto the consumer.

But, this story is still important, as it's what Apple fans (including the media) have been praising Apple for. If they love Apple products for having high profit margins, they must love the Surface even more. There is no logical rational position that praises ipads and iphones, and criticises the Surface (though you can be sure the up-Apple's-arse media will try).

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FAIL

Re: Same as Apple

If there is ZERO profitability, which is what you seem to be asking for, the company selling the product wont be around very long, wont be able to provide updates, support, enhancements, new products, etc etc. How is it working out getting updates and add ons and bug fixes and new apps for those who bought WebOS tablets?

Now, this is not to say a product can't be overpriced, of course it can (though that's mostly a subjective assessment), but to assert as you do that "products with low or zero profit" are what is required, is ludicrous. If a company is selling products at "low or zero profit" its failed for that product and whats more, will fail as a company if it keeps on doing that.

I also see no evidence that Apple fans are praising the company for having high profits, unless by that you mean, people who are fans of the company from a stock price POV, eg Apple Investors. Thats entirely separate to fans of the products.

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Anonymous Coward

Re: Same as Apple

Mark, "for anyone with any sense" profit is a bad thing for all except shareholders." What!!!! Where is your margin for diversification, your margin for expansion, your attraction for investors that are going to help finance the company and keep it relevant and expanding into new markets? Stay still in business and you're dead. The laptop industry was for years afflicted by low profit churn em-out companies and all we had was years of stagnation, price wars and undercutting leading to dreadful build quality and retarded innovation infecting almost all price levels. And a wider and much more fundamental point; What do you think brings in the money almost everyone's livelihood and well being depends upon? What do you think puts food on the table for most of the population, allows for people with cancer to have care, supports the welfare systems, ensures roads and houses are built? It's certainly not the government, or NHS, or the civil service paying themselves in some circular la-la land where money comes out of thin air (though some may think such a place is possible, including, unfortunately the banks). It's *businesses* making a *profit* powered by workers earning a crust. Sheesh, some people really have no idea how the world works. Me, I'm perfectly happy businesses should be able to make a healthy profit, I just expect a healthy level of service in return for my happily made payment.

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Silver badge

Re: Same as Apple

He wasn't talking about no income, he was talking about net profit. I.e. after all the "food is on the table" for the employees, etc. He's making the point that high profits for a company come from us the customers, so from the point of view of the customers, it's not something to brag about for your favourite company. You're essentially bragging about how they got even more money out of you.

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FAIL

Because it has a cheap ass low res screen, but for it to be profitable they have to convince people to buy it !

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And the retailer margin is probably double what Apple offers. Anyone with retail knowledge care to comment on the dealer margins offered by Apple and Microsoft?

I get the impression (partially from the lack of discounting) that Apple offer nearly zero margins and people only stock them to try to sell some accessories/warranty with them. I don't think MS will get away with that trick!

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>for it to be profitable they have to convince people to buy it !

Exactly, the headline completely ignores the cost of R&D and the cost of setting up tooling and production. Since these costs can be shared across all devices sold, the iPad remains more profitable.

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Silver badge

I actually have a Surface. Been using it for over a week now. Honestly, the screen is fine. Everything is very clear and it's extremely easy to read text on it. Haven't used it for video much yet, but it's good so far.

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Silver badge

"I get the impression (partially from the lack of discounting) that Apple offer nearly zero margins and people only stock them to try to sell some accessories/warranty with them. I don't think MS will get away with that trick!"

Good. Nor should Apple. But at least neither is actually subsidized. What I'd really like to see is the same tear-down analysis applied to things like the new Kindle or that Chromebook, so we can see exactly how much money Google and Amazon need to get back from people in order to break even on these things.

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Anonymous Coward

having played with a surface at Galeries La Fayette, Paris. I thought the keyboard was a bit iffy - tho the magnetic clips were interesting, so I'll definitely pick one up for the family after christmas, once the price has crashed down to or below the exact BOM price (like I did with WinMoPho 7.5 handsets)

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Microsoft have been clever

Microsoft have come good targeting only 32 gig as the base spec.

1) They need that much memory, because half is taken up with system OS and Office.

2) It provides a far better basis for comparison with the iPad. The reality is the most cost/profit competitive device is usually the entry level model in the line. Apple add $100 with each bump up in memory, but the profit margin on that is percentage wise far higher than the basic unit (and higher again for the 64Gb unit). Microsoft entering the market late, have their base model against Apple's mid-model with the less competitive cost/profit ratio. So MS gain extra profit headroom afforded them by Apple's pricing strategy and the users comparing across mid-range devices with the same memory spec, see the price of the base model as competitive. Clever positioning by Microsoft.

Charging as they do for the touch cover is a touch of genius (in terms of the art of pricing - not for the users obviously) because users don't compare so much on the price of the unit plus the touch cover, just the unit alone. Apple have already made a fortune from their touch cover, with huge margins, an few comment on that as a major price component (because its optional of course). MS are set to repeat the trick with an even greater margin. Again clever Microsoft.

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Silver badge

Re: Microsoft have been clever

Apple's cover I meant to refer to - not touch cover obviously.

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Stop

Re: Microsoft have been clever

I think you're missing something here: M$ will have been clever if they can sell a shitload of these. I'm no fan of Apple, far from it, but they continue to sell lots and lots of iPhads. It has take the Android slab makers a couple of years to even begin putting a dent into Apple's market share even with a wide range of quality product from the likes of Asus and Samsung.

You only need to look at M$ efforts in the mobile market: WinPho 7.x was going to clean up and the response to 8 has been muted praise at best. Their sales are still virtually flatlined at the bottom of the graph. So an over-priced high-margin slab is going to reel in the profits for Redmond? You'd have to offer me very big odds to bet on that.

The maths is simple: modest sales x high margin = tiny profits compared to Apple.

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Stop

Re: Microsoft have been clever

A 16GB Surface wouldn't have any space at all for data/user apps. Microsoft weren't exactly clever here.

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Silver badge

Re: Microsoft have been clever

Correction, Android vastly outsells IOS on mobile devices, Apple only lead on the niche of 10" tablet devices. And they only did that because of the vast amounts of free hype and advertising they got from the media even before it was announced, as well as vast support from shops, whilst Android devices have been largely ignored until recently. Hardly surprising really...

WP is still doing better than iphone in its early years. Surface however is far closer to Windows desktop, not WP - unlike ifads, it's not an oversized phone, but an actual computer.

As for your equation, well that's Apple all over - they make money by selling high profit overpriced devices to a niche. "Millions" may seem a high number, but it's ordinary for a multinational, and nothing compared to high selling products (e.g., the hundreds of millions of mobile devices that Nokia and Samsung sell a year).

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Headmaster

Re: Microsoft have been clever

Mark: correct yourself - it's obvious that I'm referring to tablet market share where Apple have about 50%: http://www.channelregister.co.uk/2012/11/05/apple_tablets_decrease/

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Re: Microsoft have been clever

Android's doing about 41% of global tablet sales now. That was 70,000 activations per day last month (Apple sold about 188,000 per day), but this only included Android tablets activated through Google. Amazon and others are additional numbers. Naturally, Apple's new products may show that back some, but the Nexus 10 is pretty sweet...

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Thumb Up

Interesting breakdown

I'm surprised that the RAM and flash cost more than the CPU ... and that the battery doesn't account for more of the cost.

I'd really like to know the difference in parts cost between 16GB, 32GB, and 64GB as fitted to iPads (and Galaxies, and the like); and the cost difference between a low-res "HD" 1366x768 screen and Apple's 2048x1536 "Retina" displays. A comprehensive price-list would be fascinating reading ... and would help us all to understand where we're being ripped off and where we aren't!

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Silver badge

Re: Interesting breakdown

Look how much a class 10 SDXC card would cost of equivalent size and figure that someone like Apple could probably get the same flash for half the price. It might cost them £20-25 for a 64GB flash part.

Of course Apple slaps a £160 markup on the 64GB model.

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Anonymous Coward

Why?

When it was rumoured that the Surface would sell for 199, I think even the most rabid anti-microsoft people were considering buying one. With the BoM at 271, they could easily have sold a few million for an 'introductory' price, and then later jack that up to 300.

Ballmer seems to think he's competing against the iPad. He's not. He's competing against every other Android tablet out there, and the two contenders in that space are the Nexus and the Kindle. Methinks having the name Microsoft on the cover is some sort of enticement for the customers. Maybe that's how it still works in the enterprise market, but in the consumer space there is only one name that sells, and it's fruity, so ffs don't try to emulate that.

Like so many others, I will be waiting for the Playbook-Moment. 200 for a OneNote appliance doesn't sound too bad. Unless Microsoft actually comes out with a OneNote app for the iPad (no, I don't mean that horribly crippled viewer they currently offer).

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Re: Why?

So, just to be clear, you DON'T think that the Surface is competition for the iPad but is instead competition for the Nexus 7 or the Kindle (FireHD I presume?) So a 10.1" tablet that has numerous business and consumer uses as well as a possible desktop replacement for the less intensive user ISN'T competitive with a 9.7" video player with some apps? But you think that that it IS directly competitive with a 7" tablet device running Android.

Sit down son before you hurt yourself, or someone else. If I was Ballmer I'd come round to your house and punch you on the nose before throwing some sales figures and market share graphs at your bloddied nostrils. Different people want different things from their tablet devices, I personally don't like the 7" form factor and despite initially loving my ipad I am becoming increasingly frustrated at the number of things it DOESN'T do, or doesn't do well, especially in a productivity space. Why should I always have to buy an app for something?? Anyway, that's off topic. Point is, I've actually used a surface unlike yourself and can safely say that it's a very nice device and the screen resolution isn't that much of a problem since 1080p doesn't really stream well. Mind you, the screen on the new, not quite so new, 3rd generation, stop gap, must get something in the shops iPad is fantastic and Avatar in 1080p looks amazing. Which is why I'll buy the Surface Pro when it comes out :)

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Silver badge

Re: Why?

Whilst in some ways it's competition for Android (e.g., it's competing for what what will become the standard OS for most tablets, rather than closed platforms where one manufacturer makes the hardware and OS), it's clearly still competing against Apple too.

And the competition for Android would be 10" Android tablets, like the Galaxy Tab and Note 10.1. These devices cost much more than the Nexus 7 and Kindle HD.

199 was stupid - no one with any sense believed that, and it was an utterly unreasonable price.

As for why the price is high, the answer is answered by this article - to make profit. They can always lower the price later on to go for a larger market. Plus they can also (unlike Apple) leave it to other manufacturers to produce cheaper Windows RT products.

"With the BoM at 271, they could easily have sold a few million for an 'introductory' price, and then later jack that up to 300."

That makes no business sense. To make money, you have the initial price high to cream money off the early adopters, then reduce the price.

"but in the consumer space there is only one name that sells, and it's fruity, so ffs don't try to emulate that."

Nonsense. Plenty of company names sell - plenty outsell them in PCs, plenty do in mobiles. Android far outsells them in mobile OS, MS far outsell them in non-mobile OS. Outside of Apple's one hit wonder (a music player that has little relevance to computing), they're not the leaders. Whilst it seems trendy to claim that MS aren't trendy, don't forget X Box. And enterprise is still important - and clearly one of the major markets that MS are going for (and yet more reason why comparing to the consumer oriented Nexus and Kindle doesn't make sense).

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Trollface

Re: Why?

"Outside of Apple's one hit wonder (a music player that has little relevance to computing),"

So, how is life in 2002?

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Happy

The iPad is still better value for money because more than half of its memory is available.

16GB for OS, what a f*cking joke.

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It's actually 8GB for the OS and 5GB for the recovery partition but I take the point and agree. There's surely nothing stopping them, given the price of the memory, putting an extra few GB's in there just for the OS. Still, you can always buy a microSD card and put in as much as you like :)

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The total install also includes MS Office Preview edition (Excel, Word, Powerpoint). And a lot of apps on WinRT are already integrated and installed on the system so those are included also.

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Stop

Your iPad comparison link is wrong

That links to the price of a 16GB LTE model. The Reg its self has a price for the WiFi only version at $316

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Re: Your iPad comparison link is wrong

Missed the link for that

http://www.reghardware.com/2012/03/19/ipad_3_costs_apple_30_per_more_to_make/

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Be interesting to see the cost of materials for their X86 version since seinsible businesses will avoid the ARM device.

I'm yet to come across any techy people who have bought one of these. I'd have been tempted but the screen resolution is a deal breaker. I may as well get a nexus 7 and a nexus 4 for roughly the same price

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Anonymous Coward

Not saying it's wrong, but no mention of volume?

Apple says it sold 3 million iPads last weekend... Microsoft is reportedly (WSJ) ordering 3-5 million Surface units (I can't tell if that is ARM+x86 or just ARM) for the entire 4th quarter.

I doubt volume discounts are part of this analysis - they are, after all, confidential and would have to be leaked. Furthermore, iSuppli's research seems to be geared towards comparative design cost analysis for manufacturers (i.e. how does my design's BOM compare to X). So it seems to be anyone's guess how much advantage that may give for an established, high volume product like the iPad vs. a new lower volume product like the Surface.

I think it's safe to say that Apple is probably getting a somewhat better discount vs. list than Microsoft is which is not reflected here... but it's impossible to say what that is exactly.

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Thumb Up

Surface more profitable than iPad

Great! Now all they have to do is actually sell one...

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http://www.ifixit.com/Teardown/Microsoft+Surface+Teardown/11275/1 and you say the iPad Mini is hard to repair?

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Pint

Software?

Doesn't the surface come with office? By the time you add the cost of that (assuming MS charged themselves the same as others) and the OS they probably aren't making much.

I am not qualified to make a comment on the surface as I have yet to see one, but I am hopeful that I will do within a couple of years....

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Re: Software?

All Windows RT comes with "Home and School" edition of Office, not for commercial use. This is estimated to cost the OEM $75-$100. But Microsoft of course doesn't pay this... their per unit cost is on par with Apple's and Google's.. just some patent licensing fees.

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Issues

Its true that Microsoft delivered an overpriced tablet... compare it to the Asus Android tablets, for example. They of course drooled over Apple's profits, but they also have to leave some room for OEMs, who will be paying $75-$100 per unit to Microsoft, or there would be no other Surface RT systems.

But iSupply is never very good at estimating the dramatic lowering of prices in huge volumes. Apple reuses parts across the whole iOS line, and orders of 25-75 million get you better prices, particular after a decade of working with a vendor dependent on your businesses, than 1/10th the volume and you first time out. Negotiations play in there, too, particularly since, if you have chip designers and actually use them will, you will know exactly what a chip costs to make. In the 80s, for example, Commodore was paying $2.50 for a 68000, when Apple paid $8.00.

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