Microsoft’s first homebuilt tablet, the Surface, costs about $267 in parts and labor if you exclude the optional keyboard cover. It went on sale on October 26 at a price of $499 with a profit margin of around 46%. Surface comes with a 10.6-inch (26.9 cm) screen, measured diagonally, and can only access the internet over Wi-Fi. The price is for the base model with 32 GB of storage.
With a similar configuration, the Surface brings a little more profit to Microsoft than Apple did when it released its third-generation iPad in March. Apple’s third-generation Wi-Fi-only iPad with 32GB of storage and a 9.7-inch (24.6cm) screen was estimated to cost $333 and retailed for $599, a margin of corresponds to 44%. The base 16GB model was $316 and was priced at $499 with a 37% profit margin.
A preliminary analysis of the fourth-generation iPad, which features a faster processor and went on sale Friday, costs about $305 in parts and labor for the 32GB Wi-Fi model, with a 49% margin, estimates IHS analyst Andrew Rassweiler. The base 16GB model costs about $295 and will sell for $499, he says.
IHS’s analysis rules out any marketing, sales, or operating system software costs that Microsoft touted with its device. The research company independently sources the devices and disassembles them to estimate the cost of the components. The analysis suggests Microsoft is imputing costs for its latest operating system, the stripped-down Windows RT, which debuted last month.
Also, its flagship tablet has to be priced high enough to allow manufacturing partners like Dell and Lenovo to compete even after Microsoft has paid for the operating system.
Apple maintains premium pricing as the market leader. Among the smaller tablets, the iPad Mini, which went on sale Friday, offers a 7.9-inch (20.1 cm) screen measured diagonally and costs $198 for parts and labor. This 16GB model retails for $329 with a 40% margin.
Google Inc.’s 7-inch offering, the Nexus 7, costs $159 for its 8GB model and will sell for $199, according to IHS. That’s a 20% profit margin. Google does a little more with its 16GB model, which costs about $167 to make but sells for $249, a margin of 33%.
Amazon.com spends about $174 to manufacture its 7-inch (17.8-inch) Kindle Fire HD with 16GB of storage and sells it for $199, for a 13% profit margin. That’s better than the original Kindle Fire, a money loser that cost Amazon about $202 at launch for every $199 it made on a sale.
Google aims to both generate profits and expand the reach of its Android operating system, while Amazon is trying to bridge the profit gap as customers buy movies, books, and magazines from its store. “Amazon and Google want to put tablets in the hands of consumers – even if it means at a minimal hardware gain,” Rassweiler said in a statement.
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