Will Microsoft Corporation Hurt Apple With the Surface Pro 3?

Is the new Microsoft device a tablet or a PC? Will Apple be impacted?

Jun 5, 2014 at 9:31PM

Microsoft (NASDAQ:MSFT) keeps trying. The tech giant, unfazed by previous underwhelming performance in hardware, recently announced its latest "tablet-doubling-as-a-laptop," the Surface Pro 3. Will the new device move the needle for investors of the Redmond-based company, and how will it impact the leader in the high-end tablet and PC industries, Apple (NASDAQ:AAPL)?

Is it a PC or tablet?
The Surface Pro 3 functions both as a PC, when combined with an add-on keyboard and (now) a more adjustable kickstand, and as a tablet -- a large one at that with its 12-inch diagonal screen, 2.3 inches more than the standard iPad. It also comes with a stylus, the Surface Pen, so the user can input information that way instead of using the keyboard or fingers. And it weighs a quarter pound less than its predecessor, although at 1.76 lbs. it is beefier than the 1-lb. iPad Air. 


Source: Microsoft.com.

So, is Microsoft targeting the tablet or PC market? The tablet business is generally growing for now, although there is some risk from phones with larger screens impacting the small tablet space (more on that later); the PC industry is not growing.

Based upon a few early product reviews, including one from Mashable, it appears the Surface Pro 3 is better at being a PC than a tablet, but the reviews indicate that the Apple iPad continues to rule the roost based on its superior operating system and functionality of apps. 

Lackluster to say the least 
Looking at the past, the data indicates that the initial attempts by Microsoft to get into the tablet market with its RT and Surface products were unsuccessful. An estimate from Digital Trends earlier this year indicated that Microsoft ranked somewhere below the top five manufacturers, selling less than 2 million of the devices in the final quarter of 2013 and generating revenue of $893 million. The Surface Pro 2 went on sale in October of last year, so some of the numbers may involve other models.

In contrast, Apple sold 26 million iPads in the same period and pulled in nearly $11.5 billion in revenue. Adding in Macbook sales, the laptop the Surface Pro 3 would compete against, would tilt the scale even more heavily in Apple's direction.

Can Microsoft pick up the pace with the new version? The Surface Pro 3 is a nice machine, but it remains to be seen if the upgrades made would propel Microsoft into the top five of tablet sellers, never mind help it leap into the No. 1 spot, currently held by Apple. 

Big phones vs. small tablets
There is a risk that the tablet market, especially in the small screen size space, could be affected by phones with increasingly big displays. Sales of devices with screens of 5 inches or more are eating into those of smaller tablets, which could affect Apple's iPad mini down the road.

To its credit, Apple recognizes this, and rumors indicate that an iPhone with a larger display is under development. Maybe the next iPad will be bigger, too.

Foolish conclusion
The Surface Pro 3, although it might be a fine machine in the "laptop" mode according to reviews, falls short as a tablet, the market where it really needs to succeed as PC shipments are slowing and tablets are generally growing. Therefore, its release probably won't help Microsoft much. Apple investors shouldn't be alarmed. 

Apple does need to pay attention to the fact that iPad mini sales could be affected by those of bigger phones. It is probably imperative that the next iPhone have a larger display.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Mark Morelli owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. 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.

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