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Get Ready for Microsoft's 7-Inch Surface

By Evan Niu, CFA - Apr 11, 2013 at 7:30PM

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There's a long string of evidence that Microsoft is working on a smaller version of its Surface tablet. If the software giant hopes for any semblance of tablet success, it has no choice but to move downmarket.

Smaller tablets are all the rage these days. Tablets with displays of 7 inches to 8 inches are turning out to be the sweet spot with consumers, balancing mobility and usability while carrying lower price points relative to larger tablets with displays of 9 inches to 10 inches. (AMZN 4.03%) was the first to show the market the way, with its 7-inch Kindle Fire being the first mover in the smaller-sized segment. Google (GOOGL 1.88%) followed suit nearly a year later with the Nexus 7. Even Apple (AAPL 2.32%) has come around, launching its iPad Mini late last year, which is quickly eating into full-sized iPad sales.

Now Microsoft (MSFT 1.29%) is preparing to get in the 7-inch game, according to a recent report from The Wall Street Journal. Insiders say that a 7-inch Surface is set to enter production later this year, which is a relatively recent development since last year Microsoft had no plans for such a device. The WSJ report is but the latest piece of evidence pointing toward Microsoft's inevitable move downmarket.

Not only has the software giant been incentivizing OEMs to explore smaller touchscreen devices through a series of discounts and price cuts, but also Microsoft's upcoming Windows 8.1 update (code-named "Blue") will include support for 7-inch tablets.

The company has also tweaked its guidelines for Windows certification to a similar effect, reducing the minimum supported resolution. The company said the change was not meant to encourage OEMs to use lower resolutions, but instead was to allow them to explore "designs for certain markets."

In doing so, the company also seemingly acknowledged that its choice of a 16:9 aspect ratio may have been misguided, since using Surface in portrait mode is comical at best and downright awkward at worst. Microsoft is opening the door to a 4:3 aspect ratio, which is what Apple uses in its iPads with much success (Amazon and Google both use 16:10).

Even Amazon is having a hard time selling its 8.9-inch Kindle Fire HD. The e-tailer just got aggressive with that device's pricing, and the price drop presumably isn't because Amazon was selling so many of them.

Microsoft has no choice if it hopes for any semblance of tablet success. A 7-inch Surface is coming.

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