It had been widely rumored that Microsoft (NASDAQ:MSFT) was set to launch a Surface Mini at its Surface launch event on Tuesday. The tablet was said to be powered by a Qualcomm (NASDAQ:QCOM) apps processor and would as a result run the Windows RT operating system. However, the only tablet unveiled at this event was an Intel (NASDAQ:INTC) powered, full Windows 8.1 12-inch device. It appears Microsoft isn't going to jump into the small-tablet pigpen, and it seems that Windows RT's prospects are fading.
Why no Surface Mini?
The small-tablet space is seemingly being overrun by the hordes of Android-based players at the low end and by Apple (NASDAQ: AAPL) at the high end. Furthermore, since Microsoft has made Windows 8.1 free for all devices under 9 inches, there is likely to be a swarm of tablet OEMs at least testing the waters there. This is not a market in which Microsoft could meaningfully differentiate, and as a result the company probably did not see sufficient value in playing there.
Is Windows RT dead?
The big question now is whether Microsoft's Windows RT-based Surface lineup is no more, as the company made no mention of it at the launch event. While some may view the lack of an update for the most recently launched Surface 2 as a confirmation of the death of Windows RT (and, to be fair, it very well may be), it's worth exploring potential reasons why Surface 2 wasn't updated at this event.
The first may simply be that the Surface 2 is selling poorly and that there is little sense in updating it with a new model when the logical move would be to clear inventories and then pull the plug. The next could be that there's not much to update right now on the Surface 2. Sure, Microsoft could move to an NVIDIA (NASDAQ: NVDA) Tegra K1 chip, or to the recently released Snapdragon 805 from Qualcomm, but would end users really care, especially since Windows RT won't run legacy Windows applications and the sparse selection of Modern UI applications won't really take advantage of any added performance anyway?
Surface 3 would be best with Intel's Cherry Trail
While Microsoft's strategy of competing with its partners is questionable, if it stays on this path, it really needs to go with an Intel processor in its more mainstream "non-Pro" Surface line. The current generation Bay Trail-T delivers solid CPU performance, but offers pretty lackluster graphics performance. This is something that is fixed with the next-generation Atom from Intel, named Cherry Trail, which -- from leaked specifications -- should have leading-edge graphics capabilities.
If Microsoft does a Surface 3, it should ditch Windows RT and instead go with an Intel processor. Microsoft can then tout that the Surface 3 -- which should come in meaningfully cheaper than the Surface Pro 3 thanks to a much cheaper bill of materials -- as an even lower-cost laptop replacement. Heck, with Cherry Trail, many traditional PC games will actually run pretty decently. This would also represent an opportunity for Microsoft to sell gaming peripherals (either internally designed or made in partnership with a company like Logitech (NASDAQ: LOGI)).
At the end of the day, Microsoft's Windows RT makes very little sense. For 10-inch and larger tablets/convertibles, Microsoft's biggest selling point is that these devices can run real Windows applications, delivering on that vision of a hybrid. With fast enough silicon (and I'm convinced that Intel's Cherry Trail will be fast enough), not only do users get the traditional "boring" applications like Quicken and Turbo Tax, but they suddenly have access to games and other intense multimedia programs.
If Microsoft wants to truly go all-in on providing a laptop/tablet hybrid that is affordable and powerful, embracing Intel's Atom road map is the long-term right way to go. The Core processors are great for higher-end notebooks/convertibles, but for buyers looking for traditional tablet thinness, battery life, and price with the added kick of full Windows application compatibility, it's all about Atom.