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Microsoft Surface RT beats iPad at profits

Posted: 07 Nov 2012     Print Version  Bookmark and Share

Keywords:Surface RT  BOM  teardown 

Microsoft Corp.'s Surface RT tablet generates a higher profit per unit than a comparable version of Apple Inc.'s wildly successful iPad, according to a teardown analysis performed by IHS iSuppli.

According to the IHS Teardown Analysis Service, the Surface RT model with a minimum of 32GB of NAND flash memory and an optional black Touch Cover carries a bill of materials (BOM) of Rs.14,728.26 ($271). Adding in Rs.706.52 ($13) in manufacturing expenses, the total cost to make each Surface rises to Rs.15,434.78 ($284), according to IHS.

Microsoft retails the 32GB version of the Surface with the Touch Cover for Rs.32,554.35 ($599), generating a profit of Rs.17,119.57 ($315) per unit, according to the IHS analysis. Even at a price of Rs.27,119.57 ($499) without the Touch Cover, Microsoft will generate a profit margin that is greater than the low-end iPad in both percentage terms and on a per-unit basis, according IHS.

The IHS teardown of the Surface RT found components made by chip suppliers including Samsung Electronics Co. Ltd., Freescale Semiconductor Inc., Atmel Corp., Nvidia Corp. and others, IHS said.

Surface RT costs

"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, in a statement.

According to Rassweiler, a key to Microsoft's strategy is offering hardware products that generate high profits on their own. "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," Rassweiler said.

Optional Touch Cover
The optional Touch Cover is one key differentiating hardware feature of the Surface, IHS said. The Touch Cover is essentially a cover that also acts like a full-function keyboard, but uses only capacitive touch sensing to operate. According to IHS, the keyboard works very well and even has a touchpad at the bottom, making the device feel and operate very much like a notebook PC when the Surface sits on its kickstand and the Touch Cover is laid flat.

"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. He said the Touch Cover also differentiates the Surface from the iPad.

The Touch Cover is as an example of a feature that can encourage users to upgrade to a higher-end model that generates more profits for a company, Rassweiler said.

According to preliminary estimates by IHS, the Touch Cover costs Microsoft Rs.869.57 ($16) to Rs.978.26 ($18) per unit. The Touch Cover accessory integrates a printed circuit board assembly with numerous chips, including a Freescale microcontroller and an Atmel touchscreen controller, IHS said.

Samsung is the biggest design winner in the Surface, according to the IHS teardown. Various divisions of Samsung supply components or complete sub-systems for many of the most expensive portions of the individual tablet dissected by the IHS, including the display, the NAND flash and the battery pack, IHS said. Most of the Samsung parts are available from multiple sources, and other suppliers are likely utilised in other individual Surface tablets, IHS said.

Another major winner is Nvidia Corp., which supplies the Surface's processor, IHS said. The Surface RT is based on an Nvidia quad-core Tegra 3 processor, which uses the ARM architecture and costs an estimated Rs.1,168.48 ($21.50), accounting for 8 per cent of the Surface RT's BOM, IHS said.

 Surface RT vendors and parts

For more statistics and forecasts, click here.

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