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Microsoft Surface Has Humble Beginnings

By Evan Niu, CFA - Nov 13, 2012 at 7:45PM

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Do tell, Mr. Softy.

Microsoft's (MSFT -0.23%) new Surface tablet appeared to be off to a strong start, with pre-orders selling out on the software giant's web site and long lines and crowds showing up -- reminiscent of an Apple (AAPL 0.17%) product launch.

Some big questions remain, though. Will Microsoft report Surface unit sales figures? How many Surface tablets is it moving? Can it compete meaningfully against the iPad, Google (GOOGL -1.34%) Nexus 10, and (AMZN 0.25%) 8.9-inch Kindle Fire HD?

Well, Steve Ballmer has vaguely addressed the first two questions. Ballmer told Le Parisien, "We've had a modest start because Surface is only available on our online retail sites and a few Microsoft stores in the United States." Those comments have led to a reaction by Microsoft shares today, which are down by over 1% while the broader market is mostly flat. Investors obviously had higher hopes for the new tablet and aren't too pleased with the Surface's humble beginnings.

Of those four tablet makers, Apple is the only one to report official unit sales figures -- 14 million last quarter -- while the search and e-tail giants like to keep their secrets. In fairness, the fact that Apple is playing its own iPad Mini launch figures close to the chest imply its debut was also somewhat modest.

Third-party estimates pegged Amazon's shipments at 2.5 million in the third quarter, and Asus' sequential increase of 1.5 million units is undoubtedly tied to the Nexus 7. But those figures pertain primarily to the small-sized tablet market, not the full-sized tablet market that the Surface targets. The Nexus 10, 8.9-inch Kindle Fire HD, and fourth-generation iPad didn't launch until this quarter.

Hopefully, Microsoft won't be too embarrassed to share Surface unit sales. The company does share other key performance indicators, such as Xbox 360 unit sales and Skype monthly connected users. Surface unit sales are certainly more important to the big picture than either of those. Do tell, Mr. Softy.

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