Analyst: Microsoft to price Surface RT tablet at $400 to $500

Computerworld - Microsoft's new Surface tablet, slated to ship later this month, will be priced between $399 and $499, an analyst said today, in the same ballpark as Apple's iconic iPad.

Sameer Singh, an analyst with Finvista Advisors, an India-based mergers and acquisitions consulting group, pegged the price of the Windows RT-powered Surface based on his preliminary -- and sight-unseen -- estimate of the tablets BOM, or "bill of materials."

Although Microsoft unveiled the Surface RT -- and the companion Windows 8-equipped Surface Pro tablet -- in June, the company has yet to slap price tags on either.

"Microsoft has been very tight-lipped about the price of its Microsoft Surface range of tablets," said Singh on his Tech-Thoughts blog, where he posts analyses not directly related to his day job. "With a launch set for later this month, speculation has intensified, with some sources stating a price less than $399 for the RT version. Let's get to a more educated estimate of the BOM cost and pricing for the Surface RT and Pro."

Singh assembled a BOM, a list of the expected components and their likely costs to Microsoft, then added a 25% to 30% markup to arrive at his $399 to $499 price range for the Surface RT.

That BOM came in at $299 for a 32GB Surface RT, with the $67 display module its most-expensive part. Many of Singh's estimates were derived from similar components in known tablets, such as Apple's 9.7-in. iPad. Adding in manufacturing costs of $10 per unit, his final BOM for the Surface RT was $309.

A retail price of $399 would give Microsoft a 23% margin, while $499 would produce a margin of 38%.

But profit margin, Singh argued, is not as critical to Microsoft as is its existing relationships with hardware partners, known as OEMs, for "original equipment manufacturers" -- the Acers, Dells and Hewlett-Packards of the industry.

"Microsoft would be under considerable pressure to ensure that the Surface is priced in the same ballpark as tablets from OEM partners," Singh argued. "Unfortunately, OEMs are also at a cost disadvantage as they need to pay Microsoft a license fee of $50-$65 per Windows RT device."

With that license in the mix, Singh said the BOM of OEM tablets similar to the Surface RT would be in the $300-$350 range. To keep OEMs happy, Microsoft will have to price its tablet with enough room for OEMs to sell theirs at a profit: Thus his price range of $399-$499 for the Surface RT.

Microsoft said as much earlier this year, when it promised prices for the Surface RT would be "competitive with a comparable ARM tablet."

Singh did not include the Surface keyboard-cum-cover, dubbed "Touch Cover" by Microsoft, in his estimate. On its Surface website, Microsoft says, "Surface comes with ... a revolutionary, 3mm thin, pressure sensitive cover that doubles as a fully functioning keyboard and trackpad," referring to the Touch Cover.

Microsoft will also sell a more capable keyboard/cover as an accessory. Called the "Type Cover," it is thicker and provides some key travel for a more notebook-like feel.