Microsoft Investors Should Be Thrilled That the Surface Mini Is Dead

Microsoft revealed in its earnings report that it had killed off a new Surface form factor, likely the rumored Surface Mini, and that decision will likely save the company a giant write-off in the future.

Jul 28, 2014 at 11:00AM

Microsoft's (NASDAQ: MSFT) foray into tablets over the last couple of years has been a mixed bag, at best. While the Surface Pro, now on its third iteration, has had enough success for Microsoft to continue the effort, the Surface, which runs a desktop-less version of Windows built for ARM Holdings' (NASDAQ: ARMH) processors, was an unmitigated disaster. It seems that Microsoft has learned from its mistakes, because the company's recent earnings release points to a new Surface device that was ultimately cancelled. This device is most likely the rumored Surface Mini, and if released, it would have almost certainly flopped.

Why a Surface Mini makes no sense
In Microsoft's earnings release, the following statement appeared:

Current year cost of revenue included Surface inventory adjustments resulting from our transition to newer generation devices and a decision to not ship a new form factor.

The newest generation is the Surface Pro 3, a 12-inch tablet with an optional keyboard attachment, meant to be a laptop replacement. During Microsoft's conference call, CFO Amy Hood stated that sales of this new device are outpacing previous versions of the Surface Pro.

Surface Pro

Surface Pro 3. Source: Microsoft

While it wasn't confirmed, the new form factor was very likely the Surface Mini, a 7-8 inch tablet that has existed only in rumors for months. While details about the device were speculation, the tablet would have likely failed for the same reasons that the original Surface failed.

Surface ran Windows RT, a version of Windows for ARM processors, and it was incompatible with normal Windows applications. The only apps that could run were those specifically created for Windows RT, and the quantity of apps was dwarfed by both Android and iOS. The one advantage that a Windows tablet has is that it can run full Windows desktop applications, but the Surface lacked that ability. Microsoft was forced to take a $900 million inventory charge after the original Surface flopped.

While it's not clear whether the Surface Mini was ARM-based or x86-based, either way it would have been a tough sell. If it was ARM-based, the same problems that plagued the Surface would have cropped up again. If it was x86-based, perhaps powered by Intel's Bay Trail, the small-sized screen would have limited the device's usefulness. Small tablets are mainly consumption devices, and trying to navigate the Windows desktop on a 7-8 inch tablet would have been a lesson in frustration.

The death of the Surface Mini likely means the end of ARM on Windows tablets. As fellow Fool Ashraf Eassa has pointed out, Intel lacked a competitive mobile chip when Microsoft first launched Windows 8, so it made sense for Microsoft to support ARM as well. But, now that Intel's Bay Trail has proven itself, it no longer makes sense to support a platform that lacks the key advantage that Windows has over Android and iOS.

The bottom line
Microsoft has rebranded itself as a company focused on productivity, and a small tablet doesn't fit with that mission. Large tablets like the Surface Pro 3, or 2-in-1s like the Asus Transformer Book T100, allow users to take advantage of all that Windows 8 has to offer. While it may make sense for OEMs to build small Windows tablets, especially now that Windows is free for small devices, it makes no sense for Microsoft to do so. CEO Satya Nadella made a good choice to dump the Surface Mini, and the decision will save the company a giant write-off in the future.

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Timothy Green owns shares of Microsoft. The Motley Fool owns shares of 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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