Is This the Beginning of the End for Small Windows Tablets?

Microsoft (NASDAQ: MSFT  ) has had a rough transition into tablets over the past few years, but things had started to turn around as of late. The company recently launched its Surface Pro 3, to generally positive reviews. But the announcement last week that Lenovo will discontinue selling Windows 8-inch tablets in the US points to a larger problem with the platform -- there's not much demand for a small Windows tablet.

Not quite the nail in the coffin
Lenovo makes two 8-inch Windows tablets for the US, and will now send those inventories to other countries. IT World said Lenovo is dropping US sales of smaller Windows tablets because there isn't demand for them. Considering Lenovo is the third-largest tablet vendor in the US, it's not as if the company's decision will sink the Windows platform on tablets. But it does bring into question the viability of Windows on smaller displays.

Lenovo's decision comes a few months after Microsoft started giving away the Windows 8 and Windows Phone platforms for free, on screens smaller than 9-inches. Microsoft wants to spur companies to make mobile devices with their OS, but Lenovo's latest move shows this may not be working for the small tablet segment.

More small tablets doubts
When Microsoft released the new Surface Pro 3 in May the company notably didn't launch a smaller version of the tablet. It was a bit of a surprising move considering Apple (NASDAQ: AAPL  ) , Amazon.com, and a myriad of Android tablets already exist in that segment.

But Microsoft may be avoiding a slowing smaller tablet market. Data released earlier this month from NPD DisplaySearch shows that many tablet vendors are moving to larger form factors as competition has increased. NPD said phones larger than 5.5-inches are competing with tablets smaller than 8-inches and it expects that competition to reduce demand for tablet PCs through 2018."

The research firm said the unit share of 7 to 7.9-inch tablets peaked at 58% in 2013, but will decline from now on. "Major brands are likely to move to larger sizes, and shipments of 8-10.9" tablet PCs will overtake 7-7.9" tablet PCs by 2018," NPD said.

Though this trend impacts all tablet makers, it may prove more troubling for Microsoft.

The bigger implications for Microsoft
The real problem for Microsoft is that it already has a small portion of tablet market share, and any drop from lack of small tablet sales is bad news.

According to Statista, Microsoft currently only holds 5.8% of worldwide tablet OS market, and having another major vendor drop two small Windows tablets from its lineup doesn't help them grow that percentage.

Apple just announced a partnership with IBM to tackle the enterprise market head on, which could boost Apple's tablet sales even higher. As part of the deal, IBM will work with Apple to create enterprise apps and services, as well as sell Apple's iPads and iPhones directly to enterprise customers.

Though Microsoft just started making its Office suite available on the iPad, the company has a lot to lose from Apple gaining more ground in the enterprise market. I'd argue that any US vendor dropping any size Windows-based tablet is a very bad thing for Microsoft. The company needs all the market share it can get and the combination of losing a major vendor, plus Apple's aggressive enterprise push, will continue to stifle Microsoft's tablet ambitions.

Apple's other device launch
Aside from two new iPhone form factors, Apple is expected to launch a wearable device this fall as well. While Samsung, LG, and soon Apple, are knee-deep in wearables there's another way for investors to benefit from this new tech trend. In our new, free report, The Motley Fool highlights one stock that makes wearable tech possible. To find out this company, and how to invest in wearable technology, just click here.


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