Unit for unit, could Microsoft’s Surface tablet be more profitable than Apple’s iPad? iSuppli certainly thinks so.
iSuppli estimates that Microsoft’s 32 GB Surface RT tablet costs $284 to build. At a retail price of $599, that’s a markup of 111 percent, with a gross margin of 52 percent … and a profit of $312. Apple’s iPad, on the other hand, typically has profit margins in the 40-50 percent range.
The 16GB iPad mini, for example, sells for $329 and costs about $188 to build, yielding a markup of 75 percent, a gross margin of 43 percent, and a profit of $141.
So, theoretically, Surface tablets could be more profitable for Microsoft than iPads for Apple. The key word here is theoretically.
The hardware costs alone of a device are only a fraction of the actual costs, which include research and development, software development, marketing, and much more. Apple, having sold 100 million iPads to date and well over 200 million iPhones, can amortize its costs over far more devices than Microsoft, which is hoping to sell three million in its first year.
It is interesting to see iSuppli’s list of the most expensive parts in the Surface RT:
The touchscreen display is the biggest cost driver at over $100. That’s a shocking price, as it’s not even a high-def screen — the iPad3’s larger retina display cost $127 almost seven months ago. After that, is the Flash and DRAM memory, and the processor itself, an Nvidia Tegra3.
But is the Surface really more profitable than the iPad? In a word, no.
Even if it does make a good headline.