One of the problems with being at the top is that you immediately become a target as contenders look to take over your title. Although Apple (AAPL +0.56%) has not helped itself with its precipitous fall from grace, it remains the name to beat in technology. Along these lines, Microsoft (MSFT 0.13%), which recently released the Surface Pro tablet-PC hybrid, is making no secret of the fact that it is coming for Apple at every level. The next product that is likely to take aim at Cupertino is a Surface Mini -- some version of the Surface tablet in a 7-inch form factor. While reports on the Surface Pro are preliminary, the company seems to have struck a nerve with certain consumers. Regardless of your view of the new devices, Microsoft is executing and deserves a spot in your portfolio.
Watch out Apple
Microsoft's aim at Apple is hardly a new phenomenon. Last summer, CEO Steve Ballmer was very vocal about the direction his company planned to take. Since he made those comments, Microsoft has released the Surface RT, the Surface Pro, Windows 8, Windows Phone in partnership with Nokia, enhanced music services, as well as other releases. All have had the target of bringing Microsoft back into the spotlight and of taking direct aim at Apple.
The Surface Pro
While there were definitely some lukewarm reviews of Microsoft's recently released device, the Surface Pro has been well received in certain circles. According to a recent study from Forrester Research, the Surface Pro is the most coveted tablet among information workers; the study showed that roughly 32% of those surveyed wanted a Windows-based tablet as their next work tablet, coming in ahead of Apple's iPad. The numbers are based on 9700 interviews, but could translate to demand for as many as 200 million devices in the immediate term. This is the type of boon Microsoft needs to put it on the map in a segment that has been essentially owned by Apple.
While there is certainly an argument to be made that information workers are a unique and very technically focused group -- perhaps making them not the best subject of popularity research for a consumer electronics device -- this is a group that serves as a gateway for business. Apple fans may be quick to dismiss this news with "the geeks always want Windows," but given that they impact what products are used in enterprise situations, their opinion matters. A lot. The ability of the Surface Pro to integrate with existing systems, making for an easy rollout is a major advantage for Microsoft.
Lock and load
At an investment conference last week, CFO Peter Klein was very clear that Microsoft is ready to saturate the market with devices across the size spectrum. This means that the company is as prepared to release devices ranging from the smartphones all the way to the large desktop PC and everywhere in between. Klein said, "The notion of flexibility and scalability of the operating system is intrinsic to our strategy." This means that a central message of Microsoft is that it is not done releasing devices branded with its own name.
One of the most likely form factors that is anticipated is the 7-inch tablet size. This size will target Apple's iPad Mini, which itself was a response to the smaller tablets that have sprung up from a wide range of places. The smaller size, which is essentially the intersection between the e-reader and the tablet, has arguably become the most popular size for tablets today.
The challenge for Microsoft will be managing the weight and size of such a device within the framework of the Surface family. One of the chief complaints about the Surface Pro was that it was too bulky and heavy to be fully practical as a tablet. The Surface Pro was larger than the Surface RT, presumably to accommodate the hardware requirements of the more powerful device. If this overall size is to shrink again, it will be interesting to see how Microsoft attacks the problem. If the smaller screen requires too thick a device, it is not likely to be successful.
Ultimately, Microsoft's next assault on the Apple nation is likely to be with a smaller tabletdesigned to attract the business user, but able to adapt the smaller footprint. Microsoft is coming after Apple relentlessly and whether you believe it will ultimately be successful, there can be little doubt that it has fought its way back into the conversation. As such, I am very bullish on the stock and think it deserves an allocation in your portfolio.
