Sony's Latest Blunder: Challenging Microsoft's Surface Pro and Apple Inc's iPad Air

Sony (SONY 0.32%) recently unveiled the Xperia Z4 Tablet, a waterproof Android 5.0 device that replaces last year's Z2 Tablet. Android tablets are a dime a dozen these days, but the Z4 sticks out because it seemingly targets Apple's (AAPL 0.51%) iPad Air 2 with its thin frame and Microsoft's (MSFT 0.46%) Surface Pro 3 with its optional keyboard dock.

Sony's Xperia Z4. Source: Sony.

The keyboard can be used with Microsoft's Office suite for Android, which comes preloaded on the Z4. Since using Android via a keyboard can be awkward, Sony created a mini launcher, giving the OS a more "Windows like" appearance, and added shortcuts to the keyboard.

Sony introduced the Z4 alongside a new smartphone, the M4 Aqua. Both devices represent Sony's continuing efforts to grow its mobile business, despite persistent rumors that the company would spin off or sell the struggling division. Unfortunately, I believe the Z4 will fail to gain much traction in the crowded tablet market.

Why Sony believes the Z4 is a contender
Sony clearly checked all of the right boxes when it came to the Z4's horsepower and size. As a result, the tablet can easily hold its own against an entry-level Surface Pro 3 or the iPad Air 2.

Source: Company and industry websites.

Sony hasn't announced the official launch price of the Z4 yet, but Engadget estimates the 32GB model will cost $499, based on the Z2's initial launch price. That would be $300 cheaper than the 64GB Surface Pro 3 and would match the price of a 16GB iPad Air 2.

Sony likely hopes the keyboard dock will win over customers looking to replace their laptop and tablet at the same time. Moreover, Google's (GOOG 1.43%) (GOOGL 1.42%) recent push into the enterprise with "Android for Work" could make the Z4 a viable workplace device, while Remote Play connectivity with the PS4 could turn it into a gaming device.

Why the Z4 will probably flop
Sony's biggest challenge is that the tablet market is currently saturated with cheap Android devices with high specs. Nokia's sleek N1 Android tablet, which was licensed to Foxconn, offers comparable specs to the Z4 for just $249. As price expectations fall, companies have to sell better hardware at lower margins, which makes it tough for $499 Android devices to remain competitive.

The tablet market's growth is also topping out. In 2014, IDC reported that global tablet shipments only rose 4.4% year over year, compared to 51% growth in 2013 and 78% growth in 2012. The tablet market stalled out for two reasons. First, tablets aren't tethered to two-year contracts like smartphones, and many consumers keep using "good enough" tablets instead of upgrading. Second, the tablet market has been split between phablets and 2-in-1 devices like the Surface Pro, making media consumption tablets less desirable. Even the iPad's global market share slipped from 32.6% in 2013 to 26.1% in 2014, according to Strategy Analytics.

Sony wants the Z4 to capitalize on the market shift toward 2-in-1 devices, but Microsoft firmly dominates that category with the Surface and similar Windows hybrid devices. Android is also optimized for touch screens, which caused previous attempts to use it as a laptop OS (like Hewlett-Packard's SlateBook) to fail. That's why Google is slowly porting select Android apps to Chrome OS, instead of launching a new version of Android for laptops and hybrids.

Sony's mobile business has a murky future
Last quarter, operating income at Sony's mobile business improved 46% year over year to $76 million after the company opted to sell fewer phones at premium prices. However, investors should recall that the mobile division posted a whopping operating loss of $1.6 billion in the previous quarter.

Sony is trying to diversify its mobile business beyond smartphones with its SmartWear wearables, smartglasses, and new tablets like the Z4, but the division still accounts for just 5% of Sony's operating income. Unfortunately, the Z4 won't do much to boost the relevance of its mobile business since it's merely a delayed attempt to follow the superior design standards set by the iPad Air 2 and Surface Pro 3.