Microsoft Partners: Surface 3 Is Impressive, But Too Expensive As Laptop Replacement

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Microsoft is pitching Surface 3 as a tablet with a 12-inch screen that can do everything your laptop can and more, but partners say it could also cause sticker shock for some shoppers.

Microsoft plans to sell an Intel Core i3-power Surface 3 for $799 and a Core i5 model for $899. Starting in August, there will also be a Core i7 Surface 3 starting at $1,549 and going up to $1,949 depending on configuration. Users that want keyboards will pay an extra $130 for the Surface 3 Type Cover.

The top-of-the-line Core i7 Surface 3 comes with 512 GB of flash storage and 8 GB of RAM. By comparison, Apple's highest-end MacBook Air has a 13-inch screen, 256 GB of flash storage, 4 GB of RAM and a dual-core Intel Core i5 processor, and goes for $1,199.
So while the top-of-the-line Surface 3 is considerably more powerful than the MacBook Air, it's also a lot more expensive.

[Related: Microsoft Unveils Surface 3, Pitching It As Tablet That Will Make People Forget About Their Laptops]

The high-end Surface 3 is around $600 cheaper than Apple's top-of-the-line MacBook Pro, but partners told CRN they don't think that price difference will get many laptop buyers to switch.

"While I think that the larger screen size is an interesting development that sets them apart even more from Apple and others, I cannot imagine who would be interested in paying those prices for [Surface 3]. I certainly would not," said Andy Kretzer, director of marketing and sales at Bold Data Technology, a Fremont, Calif.-based system builder partner.

Another Microsoft partner told CRN the bill of materials price for a high-end, Surface 3-like tablet specification from one large original device manufacturer (ODM) -- with an Intel Broadwell processor, Windows 8.1 and equivalent SSD storage and display resolution -- will be around $600 by the end of the year.

At 40 percent gross margin, that would translate to a retail price in the $1,000 range for a tablet comparable to Surface 3, the partner said.

"Personally, I think Microsoft is crazy to charge these prices [for Surface 3], but who knows?" said the partner, who requested anonymity.

That said, some partners see Surface 3 as a bold and necessary gamble on Microsoft's part.

Microsoft still trails Apple by a wide margin in the tablet market, but with iPad sales showing signs of slowing, the time is right for Microsoft to be rolling out a device like Surface 3, Steve Tutino, president of Ipanema Solutions, an Ann Arbor, Mich.-based Microsoft partner, told CRN.

"This is Microsoft's hardware business. It's their only way to get back in the game in the post-iPad world," Tutino said.

Tutino believes Surface 3 will be successful with small and midsize businesses, as well as enterprises, in no small part because of the lackluster nature of Windows tablets from Microsoft's OEM partners.

"Microsoft's only answer to Apple is going to come from within -- the OEMs cannot be trusted to save Microsoft," Tutino said.

Microsoft, which took a $900 million charge on unsold Surface RT inventory last July, has racked up around $2 billion in operating losses on Surface, according to an estimate from Nomura Securities quoted in The Wall Street Journal.


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