Will Microsoft's Surface really sell for $199?

Analysts weigh in on rumors circulating about the new tablet's price.

By Benzinga Aug 16, 2012 10:42AM
By Louis Bedigian

Microsoft (MSFT) is reportedly going to sell its first tablet, the Surface, for $199, according to Engadget. It sounds like a brilliant marketing move on the part of the Windows distributor, but is it too good to be true?


It "seems like a low price for the technology in there," James Ragan, a senior equity analyst at Crowell, Weedon & Co., told Benzinga. "I'd be a little surprised if that's the price."


Trip Chowdhry, the managing director of equity research at Global Equities Research, hopes the rumor is true.


"It makes business sense to have it priced at $199," he said. "At $199, the product is a gem. At $800, it was useless." Chowdhry had previously estimated the Surface would cost between $700 and $800 and suggested instead that Microsoft save its ad budget and give Surface away.


However, it may be impossible for Microsoft to sell the device at any low price point without taking a loss.


"They have to buy all the components -- the SSD, the processor, NVIDIA (NVDA) processor, a touch screen," Ragan said. "I just think it'd be hard to make money at $199 on that."


Ragan believes the lowest amount Microsoft could charge would be $400 to $500. He doubts Microsoft could sell the tablet for a lower price and make up for it by selling expensive software.


"I think that's possible," Ragan said. "But you're certainly not going to have the long-term software stream that you get from a gaming device, such as the Xbox. To me, if they come out with a price where they're losing money, there are problems with that on multiple levels. You're going to have other PC vendors competing in that space, too, and that's already an issue. If they're going to undercut the price so much, that's going to cause problems with a lot of their customers, too."


Microsoft may be under pressure to charge a low price for Surface now that Google's (GOOG) first tablet, the Nexus 7, has shipped with a base price of $199. Amazon (AMZN) is expected to unveil the next Kindle Fire, which may also ship at $199, later this month.


Meanwhile, Apple (AAPL), the current leader of the tablet industry, may unveil a smaller and cheaper iPad in September.


(Microsoft owns and publishes Top Stocks, an MSN Money site.)

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3Comments
Aug 16, 2012 11:29AM
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"However, it may be impossible for Microsoft to sell the device at any low price point without taking a loss."

 

Now that's the most brilliant statement I've read in awhile. Dah, if Microsoft sells Surface at cost they breakeven, below they lose and above they make money. Microsoft should sell the Surface RT for $399 which is below the plastic iPad but enough to still make 50% profit. The Surface Pro, a full blown notebook and tablet with Intel inside, and should sell for $899-1099 depending on configuration.

Aug 16, 2012 12:18PM
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And you really want to bet against the most successful tech company ever? With an installed base of over 1 billion users? With more of the best engineers then Apple, google, and facebook combined? It is not impossible for Microsoft to sell at those prices as evidenced by how much lower in cost they are combined to Apple. They are better at business then the overpriced ridiculously over priced, and tax avoiding Apple. They will make money at $199 but most people will opt for the complete package that is not currently available and that is the full Surface table and that is where they will make money. They can actually sell a $200 'App' for the surface because it runs real programs that do something beside email and entertain. Work software is always more expensive then play software. Look at how cheap Apple software is... they can't even it call it a program because it is a baby 'app'.

Time for the grownups to return and make America a real company from the spoiled rich and lazy Apple 'I don't want anything I have to work on' crowd.

Aug 16, 2012 3:47PM
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If Microsoft wants to get into this market it will need to sell them at a loss for the first round or 2 of devices.  If a consumer goes into a store and looks for a tablet and is presented with the choice of a Windows 8 RT or IPad they are going to choose the IPad simply due to name recognition.  Windows 8 tablet is not know yet and until it becomes common name like the IPad is, Microsoft is going to to loose out to Apple.  They need to make these devices cheap so that they get into a lot of peoples hands. 
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