The iPad Mini's Latest Challenger

When research firm IDC put out its latest numbers on global tablet sales, it noted that "[o]ne in every two tablets shipped this quarter was below 8 inches in screen size." The firm believes that the shift to smaller devices will accelerate, making it little surprise that, according to The Wall Street Journal, Microsoft (NASDAQ: MSFT  ) is developing a 7-inch Surface tablet to be released sometime this year. IDC expects Google's (NASDAQ: GOOGL  ) Android operating system to snatch the top market share position from Apple's (NASDAQ: AAPL  ) iOS. At this size, Microsoft is competing with the Google Nexus 7, the iPad Mini, and Amazon.com's (NASDAQ: AMZN  ) Kindle Fire HD. While this is stiff competition, getting in the fight is a critical step for Microsoft.

The tablet market
Not that there's any doubt as to how important the tablet market is, but the numbers are compelling. IDC raised its forecast for worldwide tablet shipments from 172.4 million units in 2013 to 190.9 million and expects that by 2017, 350 million units will be shipping each year. Apple and Google may rule the sandbox, but it's a big enough sandbox that carving out even a small corner can mean real and meaningful revenue for Microsoft. IDC expects that Microsoft, between its Windows OS and RT OS, account for a combined 10.1% by 2017. These projections don't include a smaller Surface, so the addition could prove to be meaningful.

Shifting markets
Earlier this week, IDC reported a 14% drop in PC sales for the most recent quarter, mirrored by an 11% drop reported by research firm Gartner. Microsoft is not a PC-maker per se, but falling numbers in this arena are a real blow to sales of Windows. This will be a critical number to watch this week as the company reports earnings on Thursday. As PC sales continue to slide, Microsoft's involvement in other areas continues to be of greater and greater importance.

What does a smaller Surface mean to the market?
Many will argue that the announcement of a smaller Surface tablet is a non-event because even the bigger Surface RT and Surface Pro have done little to disrupt the market. While this position is not without some merit, it misses the bigger picture of what I believe Microsoft is trying to achieve. As things currently stand, Apple makes the premium tablets on the market and uses this cachet to maintain its market share. Google makes the low-cost tablets on the market, using this appeal to drive its market share similarly to what it has achieved in smartphones.

Microsoft is not only trying to get its foot in the door but is also looking to change the very nature of the tablet market. Windows 8 has been widely criticized as being clunky and counterintuitive on a PC, even with a touchscreen. These reviews seem to assume that Microsoft is oblivious to this reality and failed to conduct any market research before launching the new product. I give the company that has controlled the software market for decades more credit. The only reason Microsoft would have moved forward with Windows 8 is if it has longer-term plans, like a paradigm shift in tablets.

Early versions of the Surface don't need to be perfect; they need to exist. They need to give the company a chance to perfect Windows in a new form factor and give it a chance to allow Microsoft to transform the tablet from the fun toys that Amazon and Apple sell, to business machines that Microsoft is known to support. Understanding the barrage of "Fortune 500 companies use iPads" that is coming, I believe Microsoft is aiming at this market in a quiet and astute way that warrants keeping the stock in your portfolio.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.


Read/Post Comments (6) | Recommend This Article (5)

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  • Report this Comment On April 16, 2013, at 10:11 AM, twolf2919 wrote:

    "...give it a chance to allow Microsoft to transform the tablet from the fun toys that Amazon and Apple sell.....Understanding the barrage of "Fortune 500 companies use iPads..."

    You don't see how your characterization of iPads as "fun toys" is nullified by your second in which you admit that Fortune 500 companies are flocking to the iPad?

    There is a reason the iPad is becoming so popular in business. It's form factor and weight are perfect in any context that previously used a clip-board (e.g. in hospitals to see/update patient charts) and it's the perfect tool (when combined with a cable or AirPlay-ready display devices) for giving presentations.

    Neither of these use cases requires that the device be able to create Word or Excel spreadsheets. Business users already have desktops or laptops that are much more optimized for these tasks (spacious screens, high-power CPU - neither of which is achievable in a highly portable form factor).

    This is ultimately why the Surface will fail - not enough people care about its distinctive feature set (MS Office) - at least not enough to overcome the dearth of useful applications vs. the competition.

  • Report this Comment On April 16, 2013, at 10:16 AM, fauxscot wrote:

    Small Surface will serve a small part of the market. If size is all there is to this equation, thanks, but Apple has a small unit, WITH apps, ecosystem, and usability. So far, MS employees seem to be the only market for Surface Pro and the RT? Puhleeeze. Even MS knows it's a klunker.

    Again, features, price, application, quality, customer service, integration, complete product line, and real availability (as opposed to vaporware) already compellingly recommend Apple Mini and standard iPads. What can MS possibly do besides give it away like Google does in the profit-free Android universe?

    Back to the crystal balls, boys. This article wasted my time.

  • Report this Comment On April 16, 2013, at 10:45 AM, uncoveror wrote:

    The current Surface and Surface Pro tablets are clumsy and awkward. I doubt that a smaller one is going to be better. Don't be fooled into thinking you need to go buy Microsoft stock because the Surface Mini is going to take over the tablet market. It won't.

  • Report this Comment On April 16, 2013, at 10:59 AM, Burstedbladder wrote:

    I want a 24" iPad... NOT!

  • Report this Comment On April 16, 2013, at 11:02 AM, Mreiher wrote:

    Steve Balmer needs to go... MS just seems to be behind all the time.

    I highly doubt a smaller Surface will even make a blip on the sales radar screen.

  • Report this Comment On April 16, 2013, at 11:19 AM, fwe43 wrote:

    @twolf2919 - once you come down from your apple fanboy high. You might do some real research. A lot of Surface tablets and Win 8 tablets have already been sucked up no the enterprise level. And people like myself - who have had no interest ever in owning an iPad have now bought a Win 8 tablet. Sorry but you just don't get it, I don't need 5 million iOS apps. I need 10-12 apps and I need to run the Application software I use regularly on my tablet (Adobe Photoshop, Indesign, Filezilla, etc.) so that I can be productive while I travel. not just consume.

    And to the rest of you people here parroting each other about how much you think Win 8 sucks. Care to say why, or you just repeating what you hear? I doubt most that bash it have actually used it. I am very familiar with iOS, Android and now Win 8. The best user experience on a tablet, by far is Win 8. I understand there are people who just aren't into tech and used to XP not getting it. But that hardly means Win 8 is bad.

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