Can Microsoft Compete in the Upcoming Tablet Wars?

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By most accounts, this will be the year that tablets make the long-expected jump to global acceptance. Tablets have hardly flown under the radar -- there were 47.6 million units shipped around the world in Q3 2013 -- but that's chickenfeed compared to what's expected this year.

According to a new report from Gartner, 263.45 million tablets will be shipped in 2014, a whopping 47% increase from last year's "paltry" 175.53 million. By 2015, according to Gartner, tablets will become the second most popular device sold, behind smartphones. That's a lot of opportunity, but also a tremendous challenge for Microsoft (NASDAQ: MSFT  ) as the new kid on the tablet block.

Playing with the big boys
It's no secret Microsoft was late to enter the mobile-device market, and outgoing CEO Steve Ballmer has made that abundantly clear. Acquiring the devices and services unit from Nokia is certainly a step in the right direction, particularly as Microsoft attempts to steal smartphone market share away from Apple (NASDAQ: AAPL  ) and Samsung (NASDAQOTH: SSNLF  ) .

As for tablets, Microsoft finds itself fighting the same foes -- Apple and Samsung -- and, if anything, it's even more of an uphill climb. At least with smartphones, Microsoft is on the radar thanks to Nokia, clawing its way into a respectable third place. But in the latest tablet-sales figures, Microsoft is nowhere to be found -- yet.

Of the aforementioned 47.6 million tablets shipped in Q3 2013, Apple led the way with 14.1 million, followed by Samsung's 9.7 units. And Apple's new iPad Air should give tablets sales a boost in Q4. Both behemoths were well ahead of Asus, which was a distant third with 3.5 million tablets shipped. Microsoft? It was included in the "other" category at the bottom of the list.

All is not lost
Making a dent in the fast-growing tablet market is going to be a monumental task, to be sure. But Microsoft showed signs of life in its fiscal 2014 Q1 ending Oct. 24, 2013. Though not nearly in the same ballpark as Apple's or Samsung's tablet revenues, Microsoft announced it had generated $400 million in Surface sales in fiscal Q4.

While Microsoft didn't mention in its fiscal Q1 report how the $400 million in tablet revenues stacked up to the prior quarter -- a glaring omission -- it did fess up on the earnings call that it was double fiscal 2013's Q4 results. Surface Pro's annual run-rate of $1.6 billion, not counting an expected boost in tablet sales during the holiday-shopping season, is certainly a step in the right direction.

The release of its updated, and vastly improved, Surface Pro 2 and lower-end Surface 2 tablets gives Microsoft fans another reason for hope. The new tablet rollouts were announced about the same time Microsoft updated its Windows OS to version 8.1, another change that was viewed by many as a big improvement.

The new tablets, the new OS, and its recently completed strong quarter of tablet sales, should be more than enough to maintain Microsoft's positive momentum. And if Gartner is right, 2014 will be a pivotal year for mobile devices in general and tablets in particular.

Final Foolish thoughts
Apple and Samsung fans may pooh-pooh Microsoft's tablet ambitions, and right now they can get away with it: Microsoft is little more than a blip on the radar. Thing is, Microsoft's efforts to become a significant force in the tablet wars was never going to happen overnight; that's not the way it works when you join the battle after it has already begun. But long-term Fools shouldn't count Microsoft out: Now it's got the ammunition and the timing couldn't be better.

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Read/Post Comments (5) | Recommend This Article (1)

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  • Report this Comment On January 07, 2014, at 3:35 PM, symbolset wrote:

    Microsoft has been working on Windows tablets since 1995. None of them ever amounted to anything. From the looks of it they're not going to start. Their Surface has issues where many customers can't get into the tablet for months over the holidays because of Bitlocker, their Surface Pro was stopped shipment over the holidays because of a bad update that drained the battery. Their paltry 4% share in phones isn't building the synergy for their tablets that Apple and Google are getting.

    OEMs aren't interested in WinRT and competing with their software provider on hardware. Win 8.x has issues all by itself, and the tablets are still not moving significant units.

    As Google expands their incredibly popular mobile OS from phones to tablets to just about everything that computes, they launch a second one - ChromeOS - which is getting similar traction. It appears people are ready for a change.

    Microsoft's killer app, Office, is more and more seen as a basic utility. It's overkill for the kind of stuff most people need to make, and free apps make documents pretty well. Its deliberate incompatibilities, immense heft and huge cost are obstacles to it retaining its ability to draw the majority of consumers.

    2014 is a bye year. No significant software releases all year. OEMs sticking with a Windows strategy already have no hope of saving next Christmas. It's only natural they should look to something else to work on in the meantime.

  • Report this Comment On January 07, 2014, at 4:11 PM, PedroHMG wrote:

    NO,,,Microsoft cannot compete with Apple. They might get 5 percent of market place evidentially but that's it.

  • Report this Comment On January 07, 2014, at 6:20 PM, melegross wrote:

    We have to be very careful about the numbers here. Stating that Win Phone is at a very respectable third doesn't really tell the true story.

    In the USA, Microsoft's most important market, Win Phone went from a 3.2% share in August 2013, to 3.1% in November 2013. That's not exactly "respectable", and shows a negative trend.

    While in three EU countries, Win Phone is at 10%, worldwide, marketshare remains at 3.6%.

    While some point out that Apple has trended down worldwide to 12.8%, that doesn't tell the whole story either. It was before the new phones came out late September. For example, in China, the iPhone had slipped into 6th place, at 6.5% marketshare. But shortly after the new phones came out, in October, their share jumped to almost 15%, into third place. They have a 41.5% share here in the USA.

    And considering that no phones were officially being bought for China Mobile, and its two thirds China marketshare, that says something significant. Now, with China Mobile on board, those numbers could move up further.

    So where is Win Phone in relation to that in China? Not on the list!

    Back to tablets. As Microsoft touts numbers when something is selling well, such as Kinect a couple of years ago, and the new Xbox One, we know that when something doesn't sell well, such as the old Zunes, we won't see any numbers. Well, we've not seen numbers about Win Phone or Surface since they came out. A good indication as to how badly that are doing.

  • Report this Comment On January 07, 2014, at 6:23 PM, emilykulish wrote:

    You are quoting old data. With the launch of Windows 8.1, Surface 2 and Surface Pro 2, esp. with the launch of Dell Venue Pro 8 and Asus Transformer T100 full Win8.1 laptop/tablet hybrid, Windows based tablet is catching up on Android and iPads.

    Reports are surfacing that Microsoft's Surface tablet has outsold Google Nexus during the holiday season. So wait for the next quarter's data, you will be surprised.

  • Report this Comment On January 08, 2014, at 10:04 AM, GirlsUnder30 wrote:

    For those interested in how Apple will increase margins going forward should read:

    ..and those looking for insight on who might help Microsoft compete should read:

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Tim Brugger

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.

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