Samsung (NASDAQOTH:SSNLF) could soon challenge Microsoft's (NASDAQ:MSFT) Surface devices in the Windows 2-in-1 market, according to recent rumors spotted by TechRadar. The rumors, originating from China, claim that Samsung will launch a hybrid 12" Windows 10 device powered by a Intel's fanless Core M processors, and 4GB of memory.
The rumor also suggests the device will have a Super AMOLED 4K display, and include an S-Pen. The device is also incredibly light at 1.3 pounds, with a thickness of just 0.24 inches. Microsoft's 12" Surface Pro 3, by comparison, weighs nearly three pounds, and is 0.68 inches thick.
If those specs are accurate, Samsung could have a potential "Surface killer" on its hands. We should take these kind of rumors with a grain of salt, but launching a new 2-in-1 device certainly fits in well with Samsung's past strategies.
Samsung's hybrid past
This wouldn't be Samsung's first 2-in-1 device. Back in 2013, it launched the Ativ Q, a hybrid laptop that folded into a 13.3" tablet. The device dual-booted Windows and Android, and shared data between both operating systems. The idea was an ambitious one, but the price was too steep, and the design was too confusing for mainstream users.
That same year, Samsung launched the 11.6" ATIV Tab hybrid Windows 8 tablets with detachable keyboards. The devices made more sense that the Ativ Q, but they were overshadowed by Microsoft's Surface and similar hybrid devices from other PC manufacturers. Samsung subsequently took a breather from hybrids, and decided to launch more Chromebooks. That shift made it the top Chromebook maker in the world last year, according to research firm Gartner.
But a lot has changed for Samsung during the past three years. Its share of the global smartphone market declined from 32.6% to 21.7% between the second quarters of 2012 and 2015, according to IDC, due to intense pressure from Apple (NASDAQ:AAPL) in the premium market, and cheaper rivals like Xiaomi in the lower-end one.
But during that period, Samsung's share of the tablet market more than doubled, from 7.6% to 17%. Much of that growth came at the expense of Apple, which saw the iPad's share of the market plunge from 60.3% to 24.5%. The relative strength of Samsung's tablets compared to its smartphones indicates that it makes sense to keep producing tablets.
Pockets of growth
Unfortunately, the tablet market is running out of room to grow. Last year, global tablet shipments only rose 4.4% versus 51% growth in 2013, and 78% growth in 2012. IDC expects tablet sales to decline 3.8% annually this year due to the long upgrade cycles, the rising popularity of phablets, and the commoditization of the market. However, both Gartner and IDC believe that 2-in-1 devices represent a rare pocket of growth that can buck the simultaneous slowdown of the PC and tablet markets.
That's why Microsoft's Surface sales have risen as Apple's iPad sales declined for six consecutive quarters. In response to this shift, Apple is expected to launch a 12" "iPad Pro" later this year. Rumors also indicate that a 2-in-1 device could also be in the works. Therefore, it makes sense for Samsung to build upon its foundations in slate tablets and launch new 2-in-1 Windows devices.
Samsung's smartphone struggles caused revenue at Samsung's IT and mobile communications division to slip 8% annually last quarter, and operating profit to plunge nearly 40%. To offset those losses, Samsung is using a scattergun approach to expand into other growth markets like VR headsets, wearables, Internet of Things chips, and smart home appliances. Chromebooks and 2-in-1 devices are extensions of that strategy.
The key takeaway
It makes sense for Samsung to launch 2-in-1 devices, but the market is getting crowded with lots of similar devices. Ever since Surface sales start climbing, many 2-in-1 devices have been called "Surface killers," but none of them have left a lasting impression.
Samsung certainly has the creative resources to launch a stunning premium 2-in-1 Windows device, but it's unclear if it will fare any better against the Surface Pro as its Galaxy S6 did against the iPhone. Samsung's device also won't be competing against the Surface Pro 3 -- it will be challenging the mysterious Surface Pro 4, which is expected to be unveiled in October. Nonetheless, investors should stay tuned and see if Samsung can successfully compete in the 2-in-1 market to offset its weakness in smartphones.