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Microsoft Surface (c) IHS iSuppli

Microsoft’s Surface more profitable than both Apple and Amazon’s tablets

Posted By TelecomTV One , 06 November 2012 | 0 Comments | (0)
Tags: Microsoft Surface tablets Devices Apple ipad iPad Mini Amazon Kindle Kindle Fire HD Samsung

Don’t you just love teardowns? Specialist analyst firm IHS iSuppli has come up with three new tablet reports today; one on the iPad mini, another on Amazon’s latest Kindle Fire HD, and one on Microsoft’s Surface RT. Guy Daniels reports.

Just days after Apple revealed that combined sales of its new iPad mini and fourth-generation iPad reached 3 million total units during the launch weekend, IHS has calculated that the basic 16GB wi-fi only iPad mini carries a $188 bill of materials (BOM), with an estimated $10 in manufacturing costs. Note that all estimates do not include additional expenses such as software, licensing and royalties.

 

The firm’s preliminary teardown assessment shows that the iPad mini is slightly more profitable on a percentage basis than the comparably equipped version of the new iPad when it was released in March 2012. Andrew Rassweiler, senior principal analyst for teardown services at IHS, says that Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products:

 

“Apple’s strategy entails offering differentiated hardware that justifies higher price tags than comparable products. Amazon and Google want to put tablets in consumers’ hands—even if it means doing so at a minimal hardware profit— with the intent of making their money on the content users buy, and/or the advertising and paid content they will be exposed to by buying the devices.”

 

The higher-end iPad mini models, with 32GB and 64GB of flash memory, are priced at $100 intervals. However, the incremental cost of the additional NAND flash memory to Apple is estimated by IHS to be only $9.60 for the additional 16GB and $19.20 for an additional 32GB. So the top-end model generates an additional $171 profit for Apple. Think about that before you buy… and no, you can’t add additional memory yourself.

 

The iPad mini employs GF2 multi-touch touchscreen technology, which allows the touchscreen module to be thinner than competing tablets. However, the new GF2 technology is more expensive than those used on full-sized iPads, and is estimated to cost $80 – 43 per cent of the overall BOM costs.

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The addition of the 4G LTE module hardware would cost approximately $34, excluding essential IP licensing fees.

 

The A5 processor is designed by Apple but made by Samsung (despite the two companies prolonged legal battles…) and is the same as was previously employed in the Apple TV and iPad 2. It is estimated to cost $13 – £3.50 less than the TI chip used in Amazon’s Kindle Fire HD.

 

Talking of which, IHS estimates that Amazon loses less money with its new Kindle Fire HD than the original model. The BOM for the basic 16GB wi-fi model is estimated at $165 with an additional $9 manufacturing cost – that’s $28 less than its predecessor, despite big improvements to the spec. With a sales price of $199, that means Amazon now manages to make a profit – although that’s before marketing expenses, obviously. However, that’s not realy a problem, says IHS's Andrew Rassweiler:

 

“Amazon’s strategy with the Kindle Fire HD 7-inch tablet is not really to make money on the hardware itself. Rather, the idea is to create a product at a compelling price point and then get a lot of consumer traction in order to put Amazon content and the Amazon online store into consumers’ hands.”

 

Most of the cost improvements are incremental, according to IHS. The display and touchscreen subsystem costs $64 (accounting for 39 per cent of the total BOM – much less than the screen for the iPad mini). And just as Apple profits handsomely from consumers buying models with higher memory capacity, so too does Amazon. It makes the biggest margin on the top-end 64GB Kindle Fire HD.

 

Finally, IHS has conducted some preliminary research on the new Microsoft Surface RT and found it to be more profitable than the iPad. The basic 32GB tablet with Touch Cover carries a BOM of $271, with a further $13 in manufacturing expense – set against a retail price of $599. Even without the $100 cover (which is thought to cost just $18), Rassweiler says the Surface will generate a profit margin that is greater than the low-end iPad:

 

“The Surface represents a key element in Microsoft’s strategy to transform itself from a software maker into a devices and services provider. From a hardware perspective Microsoft has succeeded with the Surface, offering an impressive tablet that is more profitable, on a percentage basis, than even the lucrative iPad based on current retail pricing.”

 

Various divisions of Samsung supply components or complete subsystems for many of the most expensive portions of the individual tablet dissected by the IHS iSuppli Teardown Analysis Service – the display, the NAND flash and the battery pack. However, most of these parts are available from multiple sources, and other suppliers are likely utilised in other individual Surface tablets.

 

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