Microsoft (MSFT 2.17%) will reveal its next-generation tablets on September 23, but with consumers steering clear of the current Surfaces right now, should investors expect the company to do any better with these devices?
It can only go up from here, maybe
If you've been following Microsoft's tablet drama over the past few months, then you probably already know poor sales of the devices have kept the Windows and Windows RT operating systems at a combined tablet OS market share of just 4.5%. For reference, Android tablets have more than 62%. That led Microsoft to take a $900 million inventory writedown for the Surface RT devices earlier this summer. To combat poor sales, the company dropped the price of both tablets earlier, but so far it hasn't significantly helped sales.
Surface RT. Source: Microsoft.
Microsoft will likely ditch the "RT" designation altogether, which was a bit confusing in its own right, and will opt instead for the Surface 2 and Surface Pro 2 names. While this may help the company distance itself from RT's negative reputation, it won't solve the problem of offering two different operating systems. Microsoft will likely offer Windows RT on the Surface 2 and Windows 8 on the Surface Pro 2, leaving consumers continually guessing which tablet is for them and what the difference is between them.
Microsoft's suppliers don't seem too thrilled with Windows RT, either. The lower-end OS was designed to be less robust and thus require less battery power than the Pro tablets. But just last week, Lenovo said it didn't see a point in having the lower-end Windows RT because the new Intel (INTC +0.30%) Haswell chip will offer high performance while maintaining all-day battery life.
While the overall design for both tablets is expected to stay the same, the company will likely increase the amount of RAM in the Pro version to 8GB, as well as add the new Haswell microprocessor. Intel has said its new chip can offer up to 50% more battery compared to its previous Core chips and has better multimedia capability. For the Surface 2, the Redmond company is expected to add a 1080p display and NVIDIA's (NVDA 4.43%) Tegra 4 processor. The latest Tegra chip is NVIDIA's most advanced mobile processor and is currently only in a handful of Toshiba and HP tablets.
It aint getting any easier
While the updates will surely be an improvement, they probably won't be enough to combat Apple's (AAPL 3.40%) refresh of the iPad in October or Amazon's (AMZN +1.00%) refresh of its Kindle FIre line in the coming months. Rumors are swirling that Apple will bring a Retina display to the Mini, while the regular iPad will receive a slimmer bezel like the Mini already has. Though Apple's place in the tablet world has been slipping, it still enjoys 32% of worldwide tablet shipment market share.
Amazon's new Kindle Fires are expected to have a full external redesign, as well as new internals for both the 7 and 8.9-inch models. Unlike Microsoft's cheapest tablet, the smaller Kindle Fire offers an optional cellular data connection. Both tablets are expected to weigh less than their predecessors and the 8.9-inch is rumored to have more pixels than Apple's larger iPad Retina display.
Investors may not be satisfied with Microsoft's changes to the Surface in light of the competition. With Android and iOS completely dominating the tablet industry, Microsoft needs to pull out all the stops when it comes to design, functionality, and features of the Surface 2. If the rumors are true, I don't think the new Surfaces are going to cut it. Consumers already identify with Android and iOS, and Microsoft is still trying to build its name in the mobile world. The company also lacks the ecosystems synonymous with Google and Apple, and with Amazon offering such high-end tablets at inexpensive prices, the Surface tablets are likely to be outgunned and outpriced at the same time.
