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Microsoft Generates 46 Percent Profit on Surface Tablet

By - Source: AllThingsD | B 35 comments

Software giant pockets $228 for each unit sold.

A teardown of Microsoft's Surface tablet has revealed that the software giant makes 46 percent profit on the device.

IHS found that Apple makes $141 per unit for its just-released iPad Mini, while Amazon makes a 15 percent profit on each Kindle Fire HD sold, which is the equivalent to about $30.

The world's largest online retailer is known to sell its Kindle e-readers and original Kindle Fire devices without making a profit as it's sold at cost price, with the company hoping to recoup its money through users purchasing books and apps on the tablet.

Microsoft, meanwhile, is making a significant amount of profit when considering that Surface is the firm's foray into the tablet market, as well as its introduction into the hardware market. The Redmond-based company makes $228 for each unit sold.

Surface retails for $499 for its base unit, while the basic 16GB Wi-Fi-only iPad Mini variant sells for $329. Amazon sells the Kindle Fire HD tablet for $199.

 

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  • 24 Hide
    krowbar , November 6, 2012 1:50 AM
    Zak, just stop.
  • 22 Hide
    freggo , November 6, 2012 1:38 AM
    The numbers are distorted of course as they do not take into account that some of the 'profit' has to be used to pay back the R&D that went into the devices.
    But than again, some 'reporters' are not too good with numbers or accounting matters.
  • 22 Hide
    deftonian , November 6, 2012 1:47 AM
    They shouldn't compare the Surface to the iPad mini, they're in two different size / productivity leagues. They should compare the profit margin of the Surface to the full size iPad. I hate when reporters compare products that aren't in the same tier.
Other Comments
  • 22 Hide
    freggo , November 6, 2012 1:38 AM
    The numbers are distorted of course as they do not take into account that some of the 'profit' has to be used to pay back the R&D that went into the devices.
    But than again, some 'reporters' are not too good with numbers or accounting matters.
  • 22 Hide
    deftonian , November 6, 2012 1:47 AM
    They shouldn't compare the Surface to the iPad mini, they're in two different size / productivity leagues. They should compare the profit margin of the Surface to the full size iPad. I hate when reporters compare products that aren't in the same tier.
  • 24 Hide
    krowbar , November 6, 2012 1:50 AM
    Zak, just stop.
  • 20 Hide
    Skeete_UK , November 6, 2012 1:51 AM
    Comparing the Surface to the iPad mini is just silly. How about some proper journalism rather than this DailyMail style nonsense.
  • 9 Hide
    abbadon_34 , November 6, 2012 1:52 AM
    How can you compare 3 entirely different devices, 3 companies, 3 OS, and 3 pricing models???
  • 19 Hide
    goodegg , November 6, 2012 1:56 AM
    Wait a minute.... Someone needs a refresher course in math. Either me or the article. If it costs you $1 to make something and you sell it for $2, that's a profit of $1, or 100%. If Microsoft if making $228 for ever unit sold, that means it costs them $499-228 to make or $271. If it costs them $271 and they sell it for $499, then their profit is 84%.

    Or am I too long out of college economics??
  • 0 Hide
    devBunny , November 6, 2012 2:07 AM
    goodeggIf it costs them $271 and they sell it for $499, then their profit is 84%.Or am I too long out of college economics??


    The given percentage (46%) is the Profit Margin - http://www.investopedia.com/terms/p/profitmargin.asp

    You're thinking of Return On Investment - http://www.investopedia.com/terms/r/returnoninvestment.asp
  • 1 Hide
    sykozis , November 6, 2012 2:18 AM
    Not every companies has billions to spend on R&D, production and marketing. So, to see a company turning an actual profit off a product isn't surprising.
  • -5 Hide
    halcyon , November 6, 2012 2:52 AM
    I'm not considering any tablet with a 1024x768 or 1366x768 resolution screen. Period.
  • 4 Hide
    assasin32 , November 6, 2012 3:41 AM
    Sorry but that isn't straight profit like they say, there is a lot of stuff to account for. R&D, shipping, manufacturing it, marketing, etc.

    And quit making everything Apple and Ipad this and that Zak it's freaking annoying. And comparing the MS Surface to Ipad is like comparing a Prius to a Tricycle because they are both "green" their two completely different things.

    I understand there are Apple/Ipad news out there but please just make sure it's constructive that is all I ask.
  • 1 Hide
    Anonymous , November 6, 2012 4:40 AM
    [The numbers are distorted of course as they do not take into account that some of the 'profit' has to be used to pay back the R&D that went into the devices.]

    There is not teardown cost analysis work. None of the other teardown ever has to account for so called R&D cost, so it should not be any different for Surface.

    The profit margin is distorted not because of the R&D, but the Windows tax itself. Sure, Microsoft does not have to pay for RT and Office licensing fee, but if you view the hardware division is merely another hardware competitor in the market, then they too have to include the $100 cost in the finished product. Hence the RT is more like $370 in cost, instead of $270. There is not a lot of margin to be made there really (the remaining profit has to be distributed over fixed cost such as R&D marketing etc), compared to Apple or more premium Android model. Similarly, that's more or less the profit margin you will be looking at for other RT models as well.
  • 4 Hide
    rohitbaran , November 6, 2012 4:58 AM
    I think Zak should be given a forced leave.
  • 1 Hide
    Iglooman , November 6, 2012 5:21 AM
    I think they missed a percentage for the Mini - using the article's "profit calculation" it would be 42.86%...
    The surface comes in at 45.69%. Not sure how Microsoft can be touted as "making a significant amount of profit" just because they are new to the game. It didn't phase Apple consumers when they first entered the game, and they are still raking over large profits per device. Everyone is just used to it and either pays, or shops for something within their means that can easily replace the shiny Apple logo.

    Your biased is clearly seen. Sadly, you're making Tom's a laughing stock. At least compare Apples to Apples (forgive the pun). A mini versus a full sized tablet? Do some research and write something intelligent instead of seeking to glorify the almighty Apple. A 2.83% difference in "profit" hardly moves Apple from "making a significant profit" to "reasonably priced competition."
  • 5 Hide
    zorky9 , November 6, 2012 6:16 AM
    " With a base price of $499 for a 32 gigabyte Surface without the Touch Cover accessory, IHS estimates that the cost of components used to build it amount to $271 for a starter 32GB model, without the cover. "

    That's from your source, AllThingsD. Bill of Materials, Zak. That excludes labor. Now you say "Software giant pockets $228 for each unit sold.". As your opening statement. In bold. Talk about journalism. Don't assume that all manufacturers have slaves, like Foxconn...

    When I drop by TH, i find the only articles worth reading are Jane's.

  • 5 Hide
    samwelaye , November 6, 2012 6:52 AM
    zorky9" When I drop by TH, i find the only articles worth reading are Jane's.


    yes yes yes yes yes. The increasing amounts of "news" posted by Zak is getting quite annoying tbh
  • -4 Hide
    Thomas Creel , November 6, 2012 8:51 AM
    Is this true? If it is WHAT THE HELL MICROSOFT! YOU HAD A CHANCE TO MAKE YOUR PRODUCT EPIC! DA FAK! I aint getting burned no mo.
  • 1 Hide
    reyshan , November 6, 2012 9:19 AM
    It is weird Zak that you are comparing a 10" tablet to a 7" ipad mini. I bet Apple is pocketing more money with the Ipad 4????
  • 1 Hide
    zybch , November 6, 2012 9:21 AM
    No doubt MS priced the Surface as they did in order to minimize the complaints of their OEMs selling their own Windows RT devices. If MS had made a 'mere' 20% on Surface, the price would have been low enough that at least one or two of the OEMs would have just pulled out of the RT device category completely.

    RT needs to take off in a big way (which it seems to have done) and one of the ways this can be accomplished is to have various devices available at different spec and price points.

    The Surface alone has sold around 60% more items than the 'new' iPad mini in around the same timeframe. Not bad for a completely untried and tested platform. Well done MS I guess.

    I purchased one and love it. The simple things like having a real file system just push the device, and all RT devices, way over the completely locked down and dumbified tablets from apple. Just waiting on a couple of apps (that have already been announced) and it'll pretty much replace my notebook and iPad for good.
    The kickstand and keyboard are astonishingly good, why on earth hasn't anyone executed these this well before?
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