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Will Microsoft Corporation Hurt Apple With the Surface Pro 3?

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. 


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.

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

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 June 06, 2014, at 12:56 AM, kwright62 wrote:

    I disagree. I think this is what consumers will think of when they think of a PC. The consolidation of a touch screen, very fast PC and a even faster tablet make this a valuable tool in any office or work space that requires mobility (healthcare).

  • Report this Comment On June 06, 2014, at 7:11 AM, Kahokfan67 wrote:

    I own an iPad and a Surface. Use both but for different things. Prior to the last six months I could not use Excel on my iPad but that has changed. The apps that I need to manage my investments are not available for the Surface. Until app development evolves for the Surface it will always play second fiddle to the Pad.

  • Report this Comment On June 06, 2014, at 1:02 PM, groberys116 wrote:

    I disagree with Kahokfan67. I too have a Surface and an IPad and unless your using the Surface RT version there are decidedly more investment apps for the Surface Pro. The Surface Pro 3 with a 12 inch screen and pen or a mouse and keyboard make the Surface Pro 3 the perfect tool for working on spreadsheets along side of investment apps. My IPad suffers from the same short coming as my current Surface Pro cramped screen size for comparing spreadsheets and investment apps. The 12 inch Surface Pro 3 will be a huge improvement over both devices because of the increased real estate. One more thing in Surface Pro 3's favor is it is a much robust tablet than the IPad....for example the last business trip I was on my IPad fell off the night stand in my room and shattered the glass. Apple will send me a replacement for $350.00. End of story the IPad requires an armor case because it is so fragile, while the Surface comes with gorilla glass and is much more robust. Putting a protective case on an IPad greatly reduces it's weight an size advantage.

  • Report this Comment On June 06, 2014, at 2:16 PM, Drichter wrote:

    Fundamentally flawed article. There's an amazing appeal to having one device that takes the place of both the tablet and the laptop, and this new Pro 3 does it better than any other.

    Not to say that iPads and traditional laptops are bad - they just don't provide the best overall experience, speaking as someone who's used a little bit of everything. I find myself needing a lightweight computer far more often than I need an oversized phone, though that could also be partially because I'm not limited to an iPhone's smaller screen.

  • Report this Comment On June 06, 2014, at 5:19 PM, Mathman6577 wrote:

    Thanks for the comments everyone.

    Drichter: If you read the article carefully you will see that if Microsoft intends the Surface Pro 3 to be a laptop it will be a difficult road ahead. The PC (including laptops) market (I.e devices intended to do PC work) is not growing and the larger screen tablet market is growing. In that market Apple has the advantage because of its operating system and superior app functionality. The Surface Pro 3 is not likely to outsell tablets from the Top 5 manufacturers, including Apple. Apple stock will not be affected by the new device.

  • Report this Comment On June 06, 2014, at 7:49 PM, kwright62 wrote:

    If today was any indication....went to the store to see this tablet in person and bought it (actually ordered it, can't buy it until the 20th). While there two other people do exactly the same thing in less than 10 minutes.

    It feels more like a tablet than an ultrabook. Not sure what it will do to Apple's charts but the Surface line has changed what a "PC" looks like.

    Anyone interested in a used Lenovo Yoga 13?

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