When The New York Times' David Pogue refers to a new device as a game changer, it is usually time to really listen up. In his recent piece on the much-anticipated Microsoft (NASDAQ: MSFT ) Surface Pro, he extols the not only the concept, but the execution of the tablet-notebook hybrid. Unlike some of the "convertibles" being rolled out at this year's Consumer Electronics Show, the Surface Pro appears to be both a real tablet and a real PC at the same time. If the device is as successful as Pogue suggests it might be, the best thing that could happen to Microsoft is for the PC to just get on with dying so that the Surface Pro can become the new gold standard in personal computing. This does not even begin to consider if the Surface Pro could be an Apple iPad killer.
Surface Pro highlights
The features that Pogue seemed most impressed with on the Surface Pro were the ease with which you can convert the device from a notebook to a tablet and vice versa. The magnetically attached keyboard easily affixes to the screen, making the device sleek and appealing. There are a few keyboard options available, ranging from a ultra-thin cover-keyboard, to one that has keys that actually move up and down for those that prefer the full tactile experience.
The other major highlight is that the Surface Pro has addressed and corrected several problems that were perceived to exist in the original Surface. At the top of this list is the fact that the Surface Pro will run a full complement of software, just like any laptop. The original Surface relied on apps from the Windows app store and was far more limited. One important observation that Pogue makes is that Microsoft is rapidly catching up in the breadth of the apps that are available in its ecosystem. Additionally, Microsoft has added additional ports and functions that seem like they should position the Surface Pro very well upon its release.
My longtime criticism of the iPad is that as much as it is a great device for consumption, it is not the first choice for production. When it is really time to do some work, we all reach for our laptop, not our iPads. As long as this remains the case, there is room to attack the iPad and win.
As part of his closing thoughts, Pogue explains that "for now, it looks as if the Surface Pro is, conceptually and practically, a home run. For thousands of people, it will be an ideal mobile companion." If the device is as robust as expected, it should be a major advance in the transition between the two types of devices. While I'm not sure the Surface Pro is practically not enough a laptop to make "death" too strong a term, it should be exciting.
Why kill the PC?
To put the numbers in context, in 2012, PC processors accounted for $31 billion in sales; by comparison, the mobile processor segment was about one-fifth the size. Editor Linley Gwennap's article in Microprocessor Report was recently quoted in a Barron's piece: "The problems of the PC market goes beyond tablets: this will be the third of the past four years that PC growth is less than 4%. A broader problem is that over the past few years, performance growth has slowed to a crawl." It further points out that "performance is increasing at just 10% per year for desktops and 16% for laptops, a far cry from the good old days of 60% annual performance increases. As a result, PC users have little incentive to upgrade their systems.'" By changing the advances in PCs from performance to form factor, Microsoft can make a major advance in consumer behavior.
Late last week, research firm IDC reported that PC sales for the fourth quarter declined by 6.4%, a much steeper decline than the 4.4% that had been expected. Even against the backdrop of Microsoft's release of Windows 8, sales dipped as other devices picked up the slack. In terms of market share, Dow component Hewlett-Packard remains at the top of the pack with 16.7% of the market, followed by Lenovo holding 15.7% and Dell with 10.6%.
The decline demonstrates the continuing trend that favors new form factors, making the timing of the Surface Pro's release somewhat ideal. The PC market remains enormous, eclipsing the mobile processor market, but the shift is impossible to escape. If the Surface Pro can lead this charge, Microsoft may be able to control some of the conversation, rather than simply being allowed to exist in the periphery.
Where the Surface Pro distinguishes itself is in the fact that it truly embraces the tablet form factor. The convertibles rolled out at the CES, while attempting to capitalize on the touchscreen functionality of Windows 8, are not as streamlined as the Surface Pro. The Microsoft device is a real tablet, and is like nothing else ever attempted.
From an investment perspective, I am a buyer of the stock ahead of the Surface Pro release. I am impressed with the efforts being made at the company, and I have a sense that Microsoft is fighting back against its slide toward mediocrity. Even if the Surface Pro is not a perfectly executed blockbuster, it will redirect the industry and put the company back at the center of the conversation. To me, that is a great place to put your investment dollars.
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