The tech research firm released new numbers today that show each $599 Surface costs $284 to make -- so, almost 53 percent of the cost is profit. The 32GB third-generation iPad, on the other hand, costs $333 to make and has a price tag of $599, which means just over 44 percent profit.
"The Surface represents a key element in Microsoft's strategy to transform itself from a software maker into a devices and services provider," IHS senior principal analyst Andrew Rassweiler said in a statement. "Key to this strategy is offering hardware products that generate high profits on their own, similar to what Apple has achieved with its iPad line. 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."
IHS' numbers focus exclusively on hardware and manufacturing and don't include distribution, marketing, software, licensing, and other costs. Also, the firm doesn't indicate exactly which iPad it is making its comparisons to. However, it's most likely the third-generation iPad that came out in March.
It appears that Microsoft is cashing in on the Surface because it is bundled with a keyboard, which has a low bill of materials. The keyboard is one of the defining factors of the tablet. Unlike the iPad, the Surface simulates a full-function keyboard making it double as both a tablet and a notebook PC.
Microsoft launched its Surface tablet last month. It runs the new Windows 8 operating system, is touch-focused, and comes withIHS released other numbers today revealing that the 16GB Wi-Fi only .iPad Mini costs $188 to make and retails for $329. We calculate that as about 40 percent profit, though IHS points out that the profit goes up about $90 for the 32GB unit for Apple than the full-sized iPad.
Both Microsoft and Apple's business plans are a departure from what Amazon and Google are doing with the Kindle and Nexus tablets. According to IHS, Google and Amazon set low prices with the goal of gaining more consumers based on content.
"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," Rassweiler said.