A preliminary estimate based on a teardown analysis by the IHS iSuppli shows that the Microsoft Surface RT tablet with the minimum 32 gigabytes of NAND flash memory and an optional black Touch Cover carries a bill of materials (BOM) of $271 and when the manufacturing expense $13 is added, the total cost to manufacture the Surface rises to $284.
Given the retrial price of the device is $599, at an estimated total BOM and manufacturing cost of $284, the Surface RT generates hardware and manufacturing profits that are, in percentage terms, higher than the low-end iPad. 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, said an IHS iSuppli report.
The report added that in terms of size, features and pricing threshold, the Surface RT is close competitor to the full-sized iPad from Apple and it plays a key role in Microsoft’s strategy to transform itself from a software maker into a devices and services provider.
“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,” said the report. “From a hardware perspective, Microsoft has succeeded with the Surface, IHS iSuppli believes, offering an impressive tablet that is more profitable, on a percentage basis, than even the lucrative iPad based on current retail pricing.”
“With options like the Touch Cover or extra flash, a manufacturer can offer a low-end model at a base price that meets a psychological threshold—$499 in this case—with the hope that consumers will impulsively opt for extra features or memory upgrades that generate major profits,” the report added.
Take a look at Preliminary Bill of Materials and Manufacturing Costs for the Microsoft Surface RT with 32GB of NAND Flash and a Black Touch Cover:
[Source: IHS iSuppli Research, November 2012]
IHS estimated that the Touch Cover that gives Surface the most attractive features of both notebook PCs and media tablets, while also differentiating it from the iPad costs Microsoft $16 to $18 per unit.
As per the teardown analysis, Samsung was the biggest design winner in the Surface as many expensive portions in the tablet belonged to Samsung, including the display, NAND flash and battery pack.
Apart from Samsung, another major winner is NVidia Corp., which supplies the Surface’s processor. The Surface RT is powered by an NVidia quad-core Tetra 3 processor that uses the ARM architecture. The Tetra 3 costs an estimated $21.50, accounting for 8 percent of the Surface RT’s BOM.
Yet another winning component supplier in the Surface RT is Atmel, which supplies multiple touch controllers in the Surface itself as well as in the Touch Cover.