Market Overview

Will Microsoft Really Sell Surface for $199?

There has been a ton of buzz surrounding the rumored $199 price point for Surface, Microsoft's (NASDAQ: MSFT) first tablet. It sounds like a brilliant marketing move for the Windows distributor to make, but is it too good to be true?

"[It] seems like a low price for the technology in there," James D. Ragan, Senior Equity Analyst at Crowell, Weedon & Co., told Benzinga this afternoon. "I'd be a little surprised if that's the price."

Trip Chowdhry, the Managing Director of Equity Research at Global Equities Research, said that he 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 that Surface would cost between $700 and $800. He had hoped that Microsoft would save its ad budget and give Surface away for free.

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 (NASDAQ: NVDA) processor, a touch screen," said Ragan. "I just think it'd be hard to make money at $199 on that."

Ragan believes that the lowest amount that Microsoft could charge would be $400 to $500. He doubts that 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, an Xbox. To me, if they come out with a price where they're losing money, there's problems with that on multiple levels. You're gonna 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 (NASDAQ: GOOG) first tablet, the Nexus 7, has shipped with a base price of $199. Amazon (NASDAQ: AMZN) is expected to unveil the next Kindle Fire, which may also ship at $199, later this month.

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

Follow me @LouisBedigianBZ

Posted-In: Crowell Equity Research at Global Equities ResearchAnalyst Color News Topics Analyst Ratings Tech General Best of Benzinga

 

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