Posted on 11/09/2012 9:34:54 AM PST by SeekAndFind
By most indications, Microsoft's (Nasdaq: MSFT ) foray into hardware is meeting, if not exceeding, expectations. Of course, you'll never hear that from CEO Steve Ballmer, and by extension the rest of Microsoft's management team. Ballmer is notoriously hush-hush about sales results, and not just those pertaining to Microsoft's new Surface tablet; most anything to do with what he views as "predictions" are taboo.
For example, when the Wall Street Journal asked about early sales of Microsoft's Surface a week or so back, his response was vintage Ballmer, "Numerically there's not really much that's interesting to report. If you were to call the retailers, they would say, 'Hey, off to a very good start.' We're out of stock a lot of places on touch[screen] machines." So you can bet there won't be any comments regarding the report issued on Nov. 5 by research firm IHS iSuppli detailing the results of a teardown analysis of Microsoft's Surface vs. Apple's iPad.
Surface, piece by piece
Microsoft's Surface RT comes with a minimum of 32 GB, flash memory, and an optional screen to protect your tablet called a "Touch Cover." There's little doubt Surface RT is designed to go head-to-head with the Apple iPad, and the profit each tablet generates for its respective manufacturer is significant, particularly for the more established Apple iPad because of both solid margins and sheer volume. But on an individual basis, Microsoft has a couple of margin-related tricks up its sleeve.
At $599, the Surface RT sporting the touch cover screen carries with it a bill of materials cost of $284. The 53% profit margin for each Surface tops the approximately 50% Apple generates with each iPad sale. Three percent may not seem like a lot, but with as many as 1 billion mobile computing units -- smartphones and tablets, in particular -- expected to be sold in 2013 (according to Gartner Research), 3% adds up in a hurry.
One of the more intriguing aspects of the IHS Surface and iPad comparison teardown report is the estimated manufacturing costs of the optional touch cover for the Microsoft tablet. The cover has a retail price of $101, but costs Microsoft an estimated $16 to $18 to manufacture, according to the IHS review. Even without the cover, the $499 Microsoft Surface has a higher profit margin than a comparable Apple iPad.
A smartphone cometh?
The profit margins for Surface reinforce the notion of a Microsoft in-house smartphone on the horizon. The only surprise surrounding Microsoft manufacturing its own smartphone is if it doesn't happen. In a sense, the Nokia (NYSE: NOK ) Lumia and smartphones from Samsung and HTC running Windows 8 are the ultimate beta tests. As the inevitable glitches and user feedback occurs, it will be Nokia, Samsung, and HTC that will bear the brunt of their customers' feedback.
Come 2013, or perhaps early 2014, a Microsoft smartphone will hit the shelves with an OS that's been fully vetted -- in this case, on someone else's dime. And you can bet a Microsoft smartphone will generate industry-leading margins per unit, just as the Surface does. A $100 smartphone cover, anyone?
Google's (Nasdaq: GOOG ) Nexus got a jump-start on Microsoft's tablet offering, and Amazon.com's (Nasdaq: AMZN ) Kindle Fire remains a competitive, entry-level alternative. But iPad sales, Google hitting 1 million Nexus units sold per month, and what most agree are solid Surface sales numbers, all make it pretty clear the tablet bar is being raised. If Amazon wants its Kindle to attract more than e-reader users, it's going to need to keep up.
With profit margins over 50%, it's easy to see why Microsoft's strategic shift to becoming a hardware provider was just a matter of time. The potential profits are simply too big to ignore.
Microsoft's 3.15% dividend yield, conservative valuation relative to its peers, and a highly profitable hardware business that's already picking up steam make it a must-have portfolio addition for mid- and long-term investors.
Even after the release of its Surface tablet, it's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, MIcrosoft is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.
If you don’t mind visiting the Huffington Post, here is a similar article:
http://www.huffingtonpost.com/2012/11/05/surface-vs-ipad_n_2079990.html
Surface vs. iPad: Microsoft’s New Tablet Is More Profitable Than Apple’s, According To Report
EXCERPT:
Microsoft and Apple are garnering the highest profit margins for their tablets, followed by Google and then Amazon, according to research firm IHS.
Microsoft Corp.’s first self-made tablet, the Surface, costs about $267 in parts and labor when excluding its optional keyboard cover. It went on sale Oct. 26 priced at $499, for a profit margin of around 46 percent. Surface comes with a 10.6-inch (26.9-centimeter) screen measured diagonally, and can access the Internet only through Wi-Fi. The price is for its base model with 32 gigabytes of memory.
With a similar configuration, the Surface bakes in slightly more profit for Microsoft than Apple Inc. did when it released its third-generation iPad in March.
There is a difference between profitability and gross margin. You’d never know that from reading this article, though. Cost of goods is but one aspect. I suspect cost assumptions are predicated upon a certain volume of sales. Sales volume over time has yet to be determined.
So, misleading article, again, in order to trumpet some similarity to Apple. Sort of pitiful, really.
1366x768 screen vs 2048x1536
year old tegra 3 chipset vs apple’s custom designed latest ASIC
Yep, Surface — it’s “The IPAD for DUMMIES”
And to prove that assertion, just consider 90% of the folks buying it think they can run regular x86 windows programs on it. Not that Msoft is doing anything to inform the customer this is not the case...they insist it’s “one w8 platform”.
Yeah, right. If you believe that, you DESERVE to be banished to Msoft land, forever. Don’t bother the rest of the productive world.
I wonder about the business model.
What happens when MS competes against their distribution channel, PC makers/VARs, in hardware?
I think the big question for MS users continues to be platform stability. How many of us have found ourselves reloading our Windows machines as they get slower and slower due to exposure to the internet? Over the period of two years my MacBook has gotten slower as well. It takes almost 21 secs, cold iron to fully functional, where it used to take 16 seconds.
We recently bought some laptops with windows 8. The interface is horrid! Amazingly bad. We had to “retro” the interface on all the machines. Everyone hated it!
Interface inspiration taken from cash register at McDonalds...
It is horrific.
A suggestion. Change out your HD for an SSD. Then your boot will be back to 15 seconds. I have a macbook pro, and it boots in 11 seconds, current version and I have 3 add-ons in the bootup sequence.
W8 was tested (according to Msoft) and was found to be immune to 85% of the viruses/hacks that W7 was not, so it’s an improvement, but 15% is still a significant exposure.
ALready I have noticed on both W7 and W8 the “install wars” where dueling software companies try to takeover/disable other vendors’ SW. For example, now when I start Lynx (Microsof’ts webex), the Webex app has installed a hack that modifies the Lynx screen to add a tab that says “Start Webex”!
Kind of like the browser wars that kept messing with default browser/setup info.
Face it, Msoft is the trailer trash of IT
My Mac has a SSD. I think what is slowing it down is the printer/scanner/copier driver I downloaded from the printer company. It is set to load at startup and I need to change some settings.
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