Microsoft's Surface Tablet May Already Be a Winner

Any fair evaluation of the numbers says that Apple's (Nasdaq: AAPL  ) iPad is the tablet to beat. But Microsoft (Nasdaq: MSFT  ) may have already found a winner in the new Surface tablet. According to Mr. Softy's retail website, the $499 edition of the new Surface, due on Oct. 26, is already on a three-week back order.

Source: Microsoft.

To be fair, the appearance of a backlog isn't the same as an actual backlog. Microsoft could be keeping inventory precious in order to artificially stoke demand.

But that's also a cynical take. The other possibility is that businesses are generally interested in the Surface. After all, Microsoft is selling the device with a choice of keyboard-embedded covers that, for about $100 more, transform Surface into a lightweight laptop that runs Windows.

Therein lies the potential advantage -- and danger. Whereas the iPad has done nothing to cannibalize Apple's sales of laptop Macs, Surface could very well threaten Ultrabook sales in which Intel (Nasdaq: INTC  ) has placed so much faith, yet which have failed to bear any meaningful earnings gains.

Microsoft isn't the only one exploring ways to profit from offering a convertible PC-tablet experience. China's Lenovo -- one of only two global PC manufacturers to ship more units during the third quarter -- is making a line of convertibles in time for the holiday season.

Surface is more of a de facto convertible, since the only PC part that ships with the device is a keyboard, and even that's an option. Nevertheless, in offering it, Mr. Softy appears to be addressing a potential need that Apple has refused to even explore.

My colleagues aren't as sold on Surface as I am. Fellow Fool Evan Niu sees Microsoft taking a hefty writedown due to its inexperience managing inventories. Senior technology analyst Eric Bleeker says Microsoft has already bungled the launch with its pricing plan, hurting chip partner NVIDIA (Nasdaq: NVDA  ) in the process.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple at the time of publication. Check out Tim's web homeportfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (6)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 17, 2012, at 6:28 PM, TMFCrocoStimpy wrote:

    I'm more of an optimist on the Surface, but that may be more hope than real analysis. My real hope is simply for a success of Windows 8 as a tablet platform to produce a competitive triumvirate of of iOS-Android-Win8, though I don't see them balancing out in market share any time soon (or at all). Another interesting hybrid is the Asustek Taichi, which is a laptop and tablet all in one, with both a forward and rear facing screen. Expensive as all get out ($1300 starting price), but as both a functional ultrabook and tablet device I'll probably check them out.

  • Report this Comment On October 17, 2012, at 6:44 PM, daveshouston wrote:

    Microsoft should do OK with surface initially. That's because they have a more or less captive market of Windows and Office fans that they can sell to. It's a pretty large market that they'll have all to themselves.

    However, I don't expect them to capture much in the way of cross-over sales. They're not likely to pull customers away from Apple or Android. Those customers are really happy, especially iPad customers. Apple's App Store is also fully loaded with hundreds of thousands of iPad tailored Apps. It's the apps that give tablets their functionality.

    So this means that Microsoft's primary target will be their own Windows customer base. These customers are so loyal to Microsoft that they're willing to ignore the dearth of apps.

    This gives Microsoft a pretty good size playground that should enable them to become a player.

  • Report this Comment On October 19, 2012, at 3:05 PM, lucasmonger wrote:

    I suspect the reason why the keyboardless one is sold out is because it's the only way to get a colored keyboard. Thus if 1 in 5 buyers like the black touch keyboard, they'll buy the $599 version, everyone else is forced to buy the $499 and manually pick the keyboard color. Alas, what happens if you want a 64 GB Surface with a colored keyboard.... right now I think you're stuck buying two keyboards. Not exactly eco or customer friendly.

    Here's another doozie... Read the fine print on the store web page.

    "[2] Microsoft Home and Student 2013 RT Preview edition installed. Final Office Home & Student version will be installed via Windows Update when available (free download; ISP fees apply). Some features and programs unsupported. Office Home & Student 2013 RT Preview and the final version are not for use in commercial, nonprofit, or revenue generating activities. Commercial license options available (sold separately). See http://office.com/officeRT."

    So I can't use this for work unless I purchase a commercial license, yet there are no prices to be found for the commercial OfficeRT.

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