Microsoft marks down Surface Pro tablet by $100

11% price cut follows much larger reductions on the Surface RT, may signal overstock on the more expensive tablets, says analyst

Microsoft on Sunday cut the price of its Surface Pro tablet by $100, or between 10% and 11%, dropping the 64GB model to $799 and the 128GB to $899.

The cuts came three weeks after much more dramatic discounts to Microsoft's Surface RT, which was reduced by up to 30% to prices starting at $349.

Microsoft said that the price cuts would be valid in the U.S. and Canada until August 30, or while supplies last. Discounts were also offered to customers in China, Hong Kong and Taiwan.

U.S. electronics retailer Best Buy -- a key Microsoft partner -- also was selling the Surface Pro tablets at the lower prices Sunday, as was Staples.

The Surface Pro tablets rely on Windows 8 Pro and Intel processors, rather than the stripped-down Windows RT and lower-powered ARM processors of the Surface RT devices. Surface Pro tablets can run traditional Windows software like the full-featured Office 2013 productivity suite.

While the price cuts were reminiscent of the more aggressive Surface RT discounts, their much smaller size could simply be part of Microsoft's back-to-school marketing: August is the biggest month for that selling season, which is second only to the end-of-the-year holidays for retailers pushing consumer electronics, personal computers and tablets.

Microsoft is expected to refresh its Surface tablet lines this fall, a notion reinforced by company executives, who have repeatedly pledged that the company is in the tablet business for the long haul. The Surface Pro discounts could be part of the usual push to empty inventory prior to the launch of new models.

The 10% to 11% price cuts were also in line with other hardware makers' recent discounting. Last month, Best Buy ran a short-term deal that chopped prices of the MacBook Pro by as much as 17%, and for college students, up to 25%.

One analyst, however, suspects that Microsoft has overestimated demand for the Surface Pro, just as it did for the Surface RT. Last month, Microsoft took a $900 million charge against second-quarter earnings to account for the steep Surface RT discounts and write off excess inventory of components and accessories.

Sameer Singh, an analyst who covers smartphones and tablets on his Tech-Thoughts website, recently ran numbers to try to come up with an ASP, or average selling price, of the Surface line based on Microsoft's disclosure that it had earned $853 million in revenue from its tablets since October 2012.

Singh based his ASP guesstimate on Surface shipment estimates from researcher IDC.

His conclusion: The low ASP -- between $370 and $430 -- hints that Microsoft had sold very few of the more expensive Surface Pro models. "This suggests that Surface Pro sales have been extremely poor, and both Surface variants may have suffered from high returns, which would certainly explain the inventory pattern in the latest quarter," Singh wrote on Thursday.

"If this continues, Microsoft may be forced into further inventory write-downs for the Surface Pro," Singh said.

Surface Pro sale
Microsoft on Sunday cut the price of the 64GB Surface Pro by $100, or 11%, to spur sales.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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