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Microsoft Corporation's Latest Surface Pro 3 Another Step In The Right Direction

By Tim Brugger – Jul 9, 2015 at 3:00PM

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The cloud king has a real opportunity in mobile, particularly its ultramobile solution. And now there’s another option for consumers.

As noted in a recent article, there was a lot of talk following CEO Satya Nadella's mission statement email to Microsoft (MSFT 1.92%) employees that its mobile hardware and affiliated businesses were on the way out. But with Windows 10 ready to launch, and some good news regarding expected growth in what Gartner calls the hybrid ultramobile market this year and beyond, ditching devices in lieu of Nadella's efforts to get Microsoft's OS into as many mobile units as possible, regardless of manufacturer, isn't likely to happen anytime soon.

Last quarter's phone sales of $1.4 billion, including 8.6 million Lumia units sold, didn't exactly knock investors for a loop, but it was nothing to sneeze at. However, Microsoft's best mobile hardware opportunity may lie with its "tablet that can replace your laptop": the Surface 3 and Surface Pro 3 line-up of ultramobile devices. Though Surface doesn't quite fit into Gartner's definition of hybrid ultramobile, when it is included the results are encouraging, to say the least. And now there's another, lower cost alternative that could help ramp up Surface sales even further.

It's good, but is it good enough?
Microsoft's new, lower-cost but still high-end Surface Pro 3 offers a reduced but still decent 128 GB of storage and Intel's i7 processor, compared to its predecessors and their 256 GB and 512 GB, respectively. Oh, one other difference: The new Surface Pro 3 is $250 less than the 256 GB version, and $650 less than Microsoft's top-of-the-line alternative. But at $1,299, the new Surface Pro 3 remains at the high-end of the market.

For users without the need for speed, there are even cheaper Surface models with less powerful Intel processors, including the recently released scaled-down Surface 3 for a mere $499. The Surface 3 is Microsoft's first real effort to take on industry leaders Lenovo (LNVGY -0.08%) and Taiwan's Asus, both of which own their ultramobile success, in large part, due to low-cost, entry-level devices. As per Gartner, Lenovo is second in hybrid sales with about 26% of the market, well behind Asus' leading 41% market share.

The opportunity
Microsoft's challenge, should it choose to accept it (and it appears it will), is to continue expanding its Surface offerings to include not only more affordable high-end devices like its new Surface Pro 3, but another Surface 3 version closer to its $499 device. It's great that Microsoft's new-ish Pro 3 can still run its suite of software solutions, in addition to satisfying what many hybrid mobile users really utilize their devices for: gaming and accessing social media and similar Internet sites.

That's at least part of the reason Gartner expects hybrid device shipments to jump a whopping 70% this year compared to 2014, to 21.5 million units. And of those units, nearly two-thirds will likely be "hybrid ultramobiles," which Gartner describes as "two-in-one detachable and convertible" ultramobiles. Which of course is right up Microsoft's Surface's expanding wheelhouse.

As alluded to earlier, Gartner splits hairs as it pertains to Microsoft's Surface offerings, calling them a "tablet ultramobile" because of its separately sold keyboard. In that niche market, Gartner estimates Microsoft is a clear number one with 36% of total sales. But here's where things get interesting: If Gartner were to include Microsoft in its overall hybrid sales results, it would already own 14% of the global market, placing it a respectable third. Not bad considering the relative newness of the Surface line-up.

For power users, be they business or consumer, the introduction of Microsoft's new, lower-cost Surface Pro 3 should give overall sales a boost. Better still, hopefully the new device is yet another indication of things to come. If Microsoft were to continue expanding its Surface line-up -- both high-end and low-end -- the 44% jump in year-over-year Surface sales to $713 million last quarter could prove to be a drop in its mobile device bucket.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Gartner and Intel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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