IHS: 32 GB Microsoft Surface costs $271 to make

We have already seen a tear down of the new Surface tablet by Microsoft done by the folks at ifixit.com. However, that article was more about how hard or easy the Windows RT-tablet would be to repair. Now a new report has its own tear down of the Surface, and this one estimates how much it takes Microsoft to make one of these new tablets.

AllThingsD.com reports that, according to the research firm IHS, the Surface costs about $271 to make for the 32 GB version of the tablet, compared to its current selling price of $499. That includes the price of the NVIDIA Tegra 3 ARM-based processor. Samsung made quite a few parts inside the Surface, including the display, its memory and the tablet's battery. Samsung's parts alone cost about $137, or about half the entire cost of making the Surface itself.

The price does not include the Touch Cover, but IHS says that add-on costs just $16 to make, compared to buying it for $120 as a separate accessory. That makes the Touch Cover highly profitable for Microsoft. There's no word on how much it takes to make the Type Cover add-on.

The same article also has a tear down of the new Amazon Kindle Fire HD, which the company is selling for $199. IHS says their tear down indicates it costs $165, making it far less profitable to make that Microsoft's Surface.

Source: AllThingsD.com | Image via IHS/AllThingsD.com

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499 dollar and 279 is for hardware, so what? They forgot Windows and Office and al the other things like development, etc. I can't believe the Touch Cover only cost 16 dollar..

Studio384 said,
I can't believe the Touch Cover only cost 16 dollar..

Parts wise, yes.

What everyone here in Micrososoft's defence keeps saying is that these teardowns can't amortize the R&D.

Microsoft spend nearly $10BN USD a year in R&D. A lot of that R&D doesn't have direct payback in today or tomorrow's products, but rather lay the foundation for our computing future.

How much of that $10BN went to surface touch cover? How much in creating VaporMG process?

While I admit Surface is too rich for my blood, I think they priced it effectively for the market, without stepping on OEM's toes.

I do enjoy watching people trip over themselves to defend a corporation. M$ has always been interested in keeping profit margins high, even at the expense of increased sales, which was never a problem with Windows, but most everything else is a different story.
I think they correctly realized that RT won't be getting the repeat buyers that Ipad enjoys, so why not make what you can while it's hot. Even at $299, MOST people will be disappointed in what it actually does, which is not run their windows programs, forgivable at a low price, not so much at current prices.

Hahaiah said,
MOST people will be disappointed in what it actually does, which is not run their windows programs, forgivable at a low price, not so much at current prices.

I really want to know who these 'most people' are. everyone who I know whose business isn't technology related loves windows store apps. They wished computers could have worked this way 10+ years ago.

Hahaiah said,
I do enjoy watching people trip over themselves to defend a corporation. M$ has always been interested in keeping profit margins high, even at the expense of increased sales, which was never a problem with Windows, but most everything else is a different story.
I think they correctly realized that RT won't be getting the repeat buyers that Ipad enjoys, so why not make what you can while it's hot. Even at $299, MOST people will be disappointed in what it actually does, which is not run their windows programs, forgivable at a low price, not so much at current prices.

Oh, the old "MS" with the dollar sign thing... How quaint! It's like you're still stuck in 2000, which is simply adorable.

Really? "Most people" means simply that. The few that have even heard of the surface all have the exact same reaction when I tell them it doesn't run windows programs, which is "pft". It's a limited OS that should be priced so, throwing in a half assed version of Office whatever doesn't fix the problem for "most people". Enjoy your new Zune experience while it lasts.

Hardware: 271
Labour: 30
OS: 20
R&D: 80
Testing: 10
Ads: 30
Distributing: 5
Packagin: 5

Total: US$ 451
MS Profit: US$ 48

------------------------------------------------------
google's way:
Hardware: 0
Labour: 1
OS: 0
Tracking Research: 100
Testing: 3
Ads: 100
Distributing: 0
Packagin: 0
Spyware: 200

WinRT said,
Hardware: 271
Labour: 30
OS: 20
R&D: 80
Testing: 10
Ads: 30
Distributing: 5
Packagin: 5

Total: US$ 451
MS Profit: US$ 48

------------------------------------------------------
google's way:
Hardware: 0
Labour: 1
OS: 0
Tracking Research: 100
Testing: 3
Ads: 100
Distributing: 0
Packagin: 0
Spyware: 200

Lot of flopping going on here today. Keep your BS to yourself.

Oh for gods sakes. THE COMPONENTS cost that much. The surface would cost MUCH more to make than just the component cost. R&D people R&D.

I wonder how they arrived at the prices for each item? It may cost more or less depending on deals MS made with manufacturers. The same way Apple squeezes each penny from parts makers Samsung could have upped their price for MS you know as payback for the Android thing. But would be interesting how the account for cost. Best Buy and Radioshack have a lot of these parts...hmm

For Apple, they can lower the price or even sell products at the loss. However, for MS, they can't do that. They can sell products at lower cost for the Surface, but they will kill their OEM.

There are a few costs that I don't see be accounted. However, even if they added another $50 it still has quite a bit of room for profit.

The crazy thing, is Acer and others were POed at the $499 Price saying it was too cheap not leaving any room for competitive products.

The other untold part of this is the reason Microsoft set this price was to be a mid range price, with room for cheaper models from other vendors.

This just confirms that Acer was making an issue out of nothing, and there is NO reason they couldn't have went forward with their initial RT devices.

thenetavenger said,
There are a few costs that I don't see be accounted. However, even if they added another $50 it still has quite a bit of room for profit.

The crazy thing, is Acer and others were POed at the $499 Price saying it was too cheap not leaving any room for competitive products.

Yeah, no kidding.

If this is close to Microsoft's cost of materials for the Surface, then it should also be close to the OEMs' cost of materials.

Which means that, even after paying Microsoft the $85 licensing fee for Windows RT, the OEMs should still make plenty of profit on an RT tablet -- certainly more than they make today on a $499 laptop. The ability to use a dirt-cheap ARM chip rather than a pricey Intel processor is a big part of the cost advantage. Essentially, Microsoft is splitting Intel's slice of the pie with the OEM.

Unless, of course, the OEMs are totally incompetent. Or at least Acer.

Ezekiel Carsella said,
that means they could lower price later down the road and still make a profit. genius
The price will come down sometime next year when they release a new model with 3g/4g and GPS.

GP007 said,
The price will come down sometime next year when they release a new model with 3g/4g and GPS.

actually I'm surprised there is no GPS in current model. that makes native Maps app and all the location based services obsolete. very strange decision.

x.iso said,

actually I'm surprised there is no GPS in current model. that makes native Maps app and all the location based services obsolete. very strange decision.

The device has a USB port. You can add your own data stick with gps.

Thieving Microsoft, why don't we all go to China and tall these parts, glue them together and we have a $271 worth Surface. /s

The research firm IHS claims that Microsoft's new Windows RT-based Surface tablet costs $271 to make for the 3S GB version, without the Touch Cover, based on a tear down of the device. more...

3S GB?

I played with the Surface when I bought it last week. It's an OK piece of technology. Nothing really special. I was really disappointed that there is no GPS on board. I returned it. For now my company is developing with strictly iPads and Android Tablets.

You rely on GPS for navigation inside your company building? /S

On a serious note, why did you even buy it if you wanted GPS, knowing it doesn't have it? Not trolling, just a question.

P.S. Wi-Fi ipads don't have GPS either.

WalterEgo404 said,
I played with the Surface when I bought it last week. It's an OK piece of technology. Nothing really special. I was really disappointed that there is no GPS on board. I returned it. For now my company is developing with strictly iPads and Android Tablets.

I am calling BS. Here you say you have an iPad, and love your Nexus 7:
http://www.neowin.net/news/ama...will-have-locked-bootloader

Then you say you laugh at people who have an iPad and a Nexus 7:
http://www.neowin.net/news/wee...did-you-pre-order-a-surface

In that last link, you say that the Surface is great and "I even per-ordered all the different color keyboards". You ordered 4 additional keyboards at $120 each? You call the Surface great, and will laugh at iPad owners, but a few days before that you said Surface was vaporware, and "the iPad Mini will kill the Surface":

http://www.neowin.net/news/rum...3-5-million-surfaces-for-q4

On October 20th you wrote you preordered a Surface, but then on October 27, you said you were thinking of getting a Surface:

http://www.neowin.net/news/hur...lay-mondays-nyc-press-event

So you pre ordered a Surface and $480 worth of keyboards for it, but was going out to buy one, you do have an iPad, but laugh at the people who have one, the Surface is great and knew so much about it to spend (at a minimum, more depending on the version you bought) $1000, but it sucks so bad without GPS that you returned it.

nohone said,

I am calling BS. Here you say you have an iPad, and love your Nexus 7:
http://www.neowin.net/news/ama...will-have-locked-bootloader

Then you say you laugh at people who have an iPad and a Nexus 7:
http://www.neowin.net/news/wee...did-you-pre-order-a-surface

In that last link, you say that the Surface is great and "I even per-ordered all the different color keyboards". You ordered 4 additional keyboards at $120 each? You call the Surface great, and will laugh at iPad owners, but a few days before that you said Surface was vaporware, and "the iPad Mini will kill the Surface":

http://www.neowin.net/news/rum...3-5-million-surfaces-for-q4

On October 20th you wrote you preordered a Surface, but then on October 27, you said you were thinking of getting a Surface:

http://www.neowin.net/news/hur...lay-mondays-nyc-press-event

So you pre ordered a Surface and $480 worth of keyboards for it, but was going out to buy one, you do have an iPad, but laugh at the people who have one, the Surface is great and knew so much about it to spend (at a minimum, more depending on the version you bought) $1000, but it sucks so bad without GPS that you returned it.

<3 being who catch people lying out of their...
You're good in my books.

nohone said,

I am calling BS. Here you say you have an iPad, and love your Nexus 7:
http://www.neowin.net/news/ama...will-have-locked-bootloader

Then you say you laugh at people who have an iPad and a Nexus 7:
http://www.neowin.net/news/wee...did-you-pre-order-a-surface

In that last link, you say that the Surface is great and "I even per-ordered all the different color keyboards". You ordered 4 additional keyboards at $120 each? You call the Surface great, and will laugh at iPad owners, but a few days before that you said Surface was vaporware, and "the iPad Mini will kill the Surface":

http://www.neowin.net/news/rum...3-5-million-surfaces-for-q4

On October 20th you wrote you preordered a Surface, but then on October 27, you said you were thinking of getting a Surface:

http://www.neowin.net/news/hur...lay-mondays-nyc-press-event

So you pre ordered a Surface and $480 worth of keyboards for it, but was going out to buy one, you do have an iPad, but laugh at the people who have one, the Surface is great and knew so much about it to spend (at a minimum, more depending on the version you bought) $1000, but it sucks so bad without GPS that you returned it.

Funny thing, after reading this post, I remembered the Killer Instinct arcade announcer going "Ultra Combooooo!"

Lol... Good times...

Mr.ed said,

Funny thing, after reading this post, I remembered the Killer Instinct arcade announcer going "Ultra Combooooo!"

Lol... Good times...

O O O O Ultra!!! Ultra!!! Ultra!!!

nohone said,

I am calling BS. <removed>

Hi Nohone,

Your argument (atleast from the links you provide) doesn't seem very convincing or cohesive to me.

In particular, in your second link where you say he's laughing at people who own a Nexus 7 and iPad, the guy posts:
"So true. People only care about a few things when buying tablets. The Surface is perfect for your average consumer that is interested in a great ecosystem and an awesome screen resolution. Don't forget, the Surface has great accessories too. The Surface will sell like hot cakes. Who needs an iPad? You can't even find one decent app and the pictures look horrible on it.

Surface FTW."
With a little bit of context about the Surface and people's complaints (largely around the display and ecosystem - i.e. lack of apps), it is clear that the mood and tone of his comment is quite different. In other words, the informed reader would interpret it as sarcasm (which may not be immediately obvious when you or I read it - though the hyperbole of "you can't find a single app [on the iPad]" kind of gave it away for me).

I haven't looked at your other links, but based on this I question if you're perhaps calling "BS" when looking a bit deeper finds that the guy's position seems not at all consistent (and is not "BS").
(Sorry for sounding so formal, I just had an English exam)

nohone said,

I am calling BS. Here you say you have an iPad, and love your Nexus 7:
http://www.neowin.net/news/ama...will-have-locked-bootloader

Then you say you laugh at people who have an iPad and a Nexus 7:
http://www.neowin.net/news/wee...did-you-pre-order-a-surface

In that last link, you say that the Surface is great and "I even per-ordered all the different color keyboards". You ordered 4 additional keyboards at $120 each? You call the Surface great, and will laugh at iPad owners, but a few days before that you said Surface was vaporware, and "the iPad Mini will kill the Surface":

http://www.neowin.net/news/rum...3-5-million-surfaces-for-q4

On October 20th you wrote you preordered a Surface, but then on October 27, you said you were thinking of getting a Surface:

http://www.neowin.net/news/hur...lay-mondays-nyc-press-event

So you pre ordered a Surface and $480 worth of keyboards for it, but was going out to buy one, you do have an iPad, but laugh at the people who have one, the Surface is great and knew so much about it to spend (at a minimum, more depending on the version you bought) $1000, but it sucks so bad without GPS that you returned it.

Ooooh.... pwned.

WalterEgo404 said,
I played with the Surface when I bought it last week. It's an OK piece of technology. Nothing really special. I was really disappointed that there is no GPS on board. I returned it. For now my company is developing with strictly iPads and Android Tablets.

lol please stop embarrassing yourself... *pwned*!

nohone said,

I am calling BS. Here you say you have an iPad, and love your Nexus 7:
http://www.neowin.net/news/ama...will-have-locked-bootloader

Then you say you laugh at people who have an iPad and a Nexus 7:
http://www.neowin.net/news/wee...did-you-pre-order-a-surface

In that last link, you say that the Surface is great and "I even per-ordered all the different color keyboards". You ordered 4 additional keyboards at $120 each? You call the Surface great, and will laugh at iPad owners, but a few days before that you said Surface was vaporware, and "the iPad Mini will kill the Surface":

http://www.neowin.net/news/rum...3-5-million-surfaces-for-q4

On October 20th you wrote you preordered a Surface, but then on October 27, you said you were thinking of getting a Surface:

http://www.neowin.net/news/hur...lay-mondays-nyc-press-event

So you pre ordered a Surface and $480 worth of keyboards for it, but was going out to buy one, you do have an iPad, but laugh at the people who have one, the Surface is great and knew so much about it to spend (at a minimum, more depending on the version you bought) $1000, but it sucks so bad without GPS that you returned it.

lol what a douche

djdanster said,
Great build quality, but really should be cheaper. Maybe MS are thinking of the research costs etc aswell?

Waiting on sales numbers. If they are disappointing, the price will go down. Remember, the Blackberry Playbook and the HP TouchPad? Priced very high, eventually sold for cheap because of disappointing sales.

WalterEgo404 said,

Waiting on sales numbers. If they are disappointing, the price will go down. Remember, the Blackberry Playbook and the HP TouchPad? Priced very high, eventually sold for cheap because of disappointing sales.


Price of the Xbox also went down, does it mean it had disappointing sales ? What about Zune? did the price go down even thought it had disappointing sales?

djdanster said,
Great build quality, but really should be cheaper. Maybe MS are thinking of the research costs etc aswell?

Obviously they are thinking about all costs, not just the bare hardware. If you sell at a price that only covers hardware, they would actually be making a loss.

They also have to be very careful not to damage their relationships with other OEMs.

WalterEgo404 said,

Waiting on sales numbers. If they are disappointing, the price will go down. Remember, the Blackberry Playbook and the HP TouchPad? Priced very high, eventually sold for cheap because of disappointing sales.


I don't think the sales will disappoint. Working at the ms store here, we still are constantly seeing people pick up surfaces and tons of excitement. And barely any returns so that's a good sign.

aviator189 said,

I don't think the sales will disappoint. Working at the ms store here, we still are constantly seeing people pick up surfaces and tons of excitement. And barely any returns so that's a good sign.

1 team 1 dream! =)

again forgetting everything about r&d, development, labour, packaging, marketing, licensing, distributing, ...

What's the point of these articles? I might have found it interesting if the only conclusion was, the hardware parts of the surface cost about 271 dollars. But the conclusion that it must be highly profitable for microsoft based on the hardware cost alone is so far fetched that it makes the entire article seem ridiculous

Exactly. $271 minus R&D, advertising, making/testing alpha/beta models and paying for everything else to make a grand total of $499 seems pretty good value for money to me.

n_K said,
Exactly. $271 minus R&D, advertising, making/testing alpha/beta models and paying for everything else to make a grand total of $499 seems pretty good value for money to me.

You forgot the close to $2B ad campaign.

WalterEgo404 said,

You forgot the close to $2B ad campaign.


? 'Exactly. $271 minus R&D, advertising...'
$499 is a good price in my mind.

XerXis said,
again forgetting everything about r&d, development, labour, packaging, marketing, licensing, distributing, ...

What's the point of these articles? I might have found it interesting if the only conclusion was, the hardware parts of the surface cost about 271 dollars. But the conclusion that it must be highly profitable for microsoft based on the hardware cost alone is so far fetched that it makes the entire article seem ridiculous

And don't forget the machines that MS designed to create the Surface that injects the VaporMg to its form. MS had to design (R&D), and made a few of those machines and shipped it to China for manufacturing.

Article: this custom designed hinge that took Microsoft years and millions of R&D dollars to make costs 37 cents to make.

Ok, so that means 3 x 27 cents = less than a dollar. OMG, cheap Microsoft, wants to make huge profit margins, omg, omg.

XerXis said,
again forgetting everything about r&d, development, labour, packaging, marketing, licensing, distributing, ...

Add in software costs (which include Office in addition to Windows) and I'm sure your looking at over $100 in software which will put this close to the $400 mark. Even though MS makes the software, I'm sure they treat themselves as an OEM to not upset their partners.

FoxieFoxie said,
Article: this custom designed hinge that took Microsoft years and millions of R&D dollars to make costs 37 cents to make.

Ok, so that means 3 x 27 cents = less than a dollar. OMG, cheap Microsoft, wants to make huge profit margins, omg, omg.

And don't forget the fee to patent the hinges.