Microsoft's Surface tablets were generally well-received by media when they were unveiled back in June despite the fact that Redmond didn't fully disclose everything about the Windows 8 portables. One of those key sticking points is price, a topic that Microsoft has said will be addressed close to availability.

We were initially told that Surface tablets will be priced competitively with a comparable ARM tablet or Intel Ultrabook-class PC but the latest news from Engadget suggests Microsoft is preparing to significantly undercut the competition.

An unnamed "inside source" that attended Microsoft's recent TechReady 15 conference told the publication that Microsoft is preparing to launch the ARM-based Surface for Windows RT with 32GB of storage at just $199, putting it in the same boat as Amazon's Kindle Fire and the recently released Google Nexus 7 tablet.

One would have to imagine that Microsoft would be taking a loss on the cost of hardware at this price. Even if they broke even on the hardware costs, they'd likely sell a ton of tablets at this price which would get more people into the ecosystem. That could be part of the strategy, however, as they would hope to make up any losses through the sale of apps and other media for the tablet.

I'd personally be surprised if Microsoft went with this price. A 10-inch tablet with 32GB of storage, a cover that doubles as a keyboard and Office applications pre-loaded would make it extremely difficult for OEMs to compete.