Will Surface Pro 3 Problems Put a Lid on Microsoft Stock?

The Surface Pro 3 holds promise, if Microsoft can fix the issues plaguing the device. Credit: Microsoft.

Just when Microsoft (NASDAQ: MSFT  ) looked to gain footing with its new Surface Pro 3 convertible tablet -- the first capable of replacing your laptop, Mr. Softy says -- ZDNet's Ed Bott has confirmed a problem connecting the device to high-speed wireless networks.

From what I can tell, an update to the underlying system software and firmware (i.e., code that lives and executes directly in silicon) introduced new errors to the Surface Pro 3 while fixing others. Click here to read Bott's full report.

For investors, the news comes at a bad time. Microsoft is trying to win premium customers to the Surface Pro 3 after spending most of the past two years pitching from the bargain bin:

Metric
Q1 Fiscal 2014
Q2 Fiscal 2014
Q3 Fiscal 2014

Surface Revenue

$400 million

$893 million

$494 million

Surface Cost of Revenue

$645 million

$932 million

$539 million

Device Gross Margin

(61.25%)

(4.37%)

(9.11%)

Sources: SEC filings.

Yet this is also par for the course. Microsoft has spent years selling the Xbox console at a loss to gain a foothold in gaming. Then, last year, Mr. Softy pitched the Xbox One has a higher-priced alternative in hopes of winning more deep-pocketed customers. Too many went on to buy Sony's PS4, forcing Microsoft to cut prices.

Surface Pro 3 could suffer the same fate. Microsoft knows it, too, and is already offering $650 in trade-in value to anyone handing over a MacBook Air. Still, drawing such a direct comparison to Apple's sleek laptop creates risk, especially if the Surface Pro 3 fails to deliver a premium experience. That's why what looks like an otherwise small Wi-Fi bug matters so much.

What to do next? If you're a current or prospective Microsoft investor, hang tight and stay tuned here for more reporting on the error and Surface Pro 3 sales. My guess is we'll see a slowdown in the short term as the bugs get worked out. But I also like the potential -- not only for the Surface Pro 3 but also for similar convertibles as users shift computing tasks to lightweight devices.

Now it's your turn to weigh in. Do you own the new Surface Pro 3? Have you experienced the Wi-Fi issues ZDNet describes? Leave your take in the box below.

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

Comments from our Foolish Readers

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  • Report this Comment On July 06, 2014, at 12:35 PM, maxtoo wrote:

    More fail from Microsoft!

    Nothing new here!

    Last two years or more they have lost their way!

  • Report this Comment On July 06, 2014, at 12:51 PM, davezzz wrote:

    Surface revenues were 9% of total for last qtr in your table above. Thus, so far the Surface loss barely effects net margins.

    The real story is this (imo):

    Investor sentiment surrounding the Surface line is extremely low. Therefore, I think a slow run rate won't effect the stock. But if sales do better then expected, perhaps the machine breaks even, the stock has more upside.

    I pre-ordered my Pro 3 and it's very good. The weakest part is the track pad (still not great), touch can be improved on the desktop, and I would prefer a 13 inch Surface Ultra Book with a 360 degree keyboard like the yoga, but same high quality pen input.

    On the positive side, there is nothing like annotating your PDFs with pen. I read dozens of research reports a week and the convertible tablet experience blows away old school laptops. Note taking is also impressive with pen.

    My conclusion, the machine is superior to any laptop if you use the pen and touch. But there are few minor quirks. But nothing to stop you from buying.

  • Report this Comment On July 06, 2014, at 5:38 PM, tjc206 wrote:

    I've had absolutely no problems with my Surface Pro 3. This device is light years ahead of any tablet on the market. If anything this device should pop the lid off Microsoft stock.

  • Report this Comment On July 07, 2014, at 1:59 PM, jpanspac wrote:

    I think I've got the same problem with my Dell Venue 11 Pro.

  • Report this Comment On July 07, 2014, at 2:54 PM, cjaying wrote:

    I, too, preordered my Pro 3 and received it on June 20. I've had absolutely no problems whatsoever with it. It's been a great experience so far. Love using the pen. It's very responsive. Can't imagine what I did before! I've used several different WI-Fi connections and have not encountered one problem. I would highly recommend the Pro 3 to replace a laptop. It has replaced my 7-year old, heavy laptop. This is my dream machine!

  • Report this Comment On July 07, 2014, at 5:12 PM, groberys116 wrote:

    I had a Wi-Fi problem with the 1st Surface Pro, but it was corrected with an improved driver from Marvel. I have had no problems with the 1st Surface Pro system and when the i7 processor is available I'm upgrading to the Surface Pro 3. I have had a chance to use the Surface Pro 3 with an i5 and it is very responsive/quick. The new pen works very well also. However, the pen on my current system is pretty darn good. If you haven't had a chance to use a tablet or a ultra laptop you have no idea what your missing. The pen works great for taking notes or writing memos and especially useful for adding remarks to PDF messages.

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