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Best-guess $349 price for smaller Surface RT pits Microsoft against Apple for high-end Mini market

Gregg Keizer | June 13, 2013
Microsoft will probably price its own 8-in. Surface tablet running Windows RT at $349, just 6% higher than Apple's iPad Mini but nowhere near the basement $199 of Android rival

Microsoft will probably price its own 8-in. Surface tablet running Windows RT at $349, just 6% higher than Apple's iPad Mini but nowhere near the basement $199 of Android rivals, an analyst said earlier this week.

Sameer Singh, an analyst who covers tablets and smartphones at his Tech-Thoughts website, pegged the price of an expected Windows RT-powered Surface RT "Mini" using a bill of materials (BOM) estimate largely based on industry-wide commodity component costs.

Using the same techniques last year — akin to the "virtual" tear-downs that other research firms have conducted before a rumored product is actually released — Singh accurately predicted the eventual retail prices of Microsoft's Surface RT and Surface Pro tablets.

His sight-unseen BOM for an 8-in., 16GB Surface RT tablet totaled $203.40, which included a $13 charge for manufacturing.

With that BOM in hand, Singh posited several possible retail prices, showing the margins for each. The margins he spelled out were "gross margins," in that they show the difference between the selling price and the cost of goods, the latter essentially the same as the BOM. Gross margins do not account for other costs, such as research and development (R&D), marketing and sales.

Singh's conclusion: The most likely price of a Surface RT Mini — the label pundits have slapped on an 8-in. tablet running Windows RT — will be $349.

That price would generate a gross margin of 42% if the BOM was accurate, or 33% and 50% if the bill of materials was 15% too low or too high, respectively.

"Microsoft sold the original Surface RT at a gross margin of roughly 47%," said Singh on his Monday blog. "A similar gross margin for the Surface [RT] Mini would imply a price of $399, the high-end of the potential price range. Since smaller tablets usually carry lower margins compared to 10-in. devices, $349 may be the most likely price."

Microsoft has not announced a smaller Surface RT tablet, but in April said it would add smaller devices to its Surface line, as would its OEM (original equipment manufacturer) partners. Last week, Acer introduced the Iconia W3, at 8.1-in. the first sub-10-in. tablet powered by Windows 8. The Iconia W3 lists for $379 for a 32GB version and $429 for a 64GB device.

As he did last year when he ball-parked the Surface RT and Surface Pro costs, Singh said that Microsoft could go with a lower price for a Surface RT Mini, taking a smaller margin. But he thought that unlikely. To keep OEMs happy, Microsoft must price its tablets so there's enough room for OEMs to at least match them and still make a profit.

 

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