This week, software giant Microsoft (MSFT: Charts, News) unveiled its first Windows 8 tablet, Surface, to directly compete with Apple’s (AAPL: Charts, News) industry dominating iPad. This is the first time Microsoft has abandoned its strategy of relying on hardware vendors to showcase its flagship operating system. The Surface will compete directly with not only Apple, Google (GOOG: Charts, News) and Amazon (AMZN: Charts, News), but also its Wintel allies – such as Hewlett Packard (HPQ: Charts, News) and Dell (DELL: Charts, News) – on both the tablet and ultrabook fronts. Microsoft has struggled to catch up to Apple, Samsung and Google on the mobile front – its smartphone offerings, with its limited developer support, have failed to dent the market. Its last ditch partnership with ailing handset maker Nokia (NOK: Charts, News), which produced the Lumia series of handsets, has yet to yield any meaningful revenue.
The Surface, introduced by CEO Steve Ballmer, has attracted some followers, who have praised the tablet’s built-in kickstand and magnetic keyboard, with also acts as a screen cover. The tablet’s color theme of bright pastels is similar to Nokia’s Lumia devices. The tablet is 9.3 millimeters thick and weighs 1.5 pounds, comparable to the iPad, which is 9.4 millimeters thick and weighs 1.44 pounds. The Surface’s 10.6 inch screen is slightly larger than the iPad’s 9.7 inch display.
While the device’s design aesthetic impressed many industry watchers, Microsoft was unusually vague regarding the tablet’s other specifications. The company did not elaborate if the Surface would connect to Wi-Fi networks, 3G/4G cellular ones or both. No details regarding expected battery life – an important selling point for tablets – were announced. Two versions were introduced – one running Windows 8 powered by Intel (INTC: Charts, News) chips, and another running a Windows 8 variant called Windows RT, which runs on Nvidia (NVDA: Charts, News) Tegra mobile processors. Tegra processors are based on CPU architecture from ARM Holdings (ARMH: Charts, News), the dominant processor manufacturer of modern smartphones and tablets. The Windows 8 version will cost the same as comparable Intel ultrabooks, at approximately $1,000, while the Windows RT version will retail for less than half, to compete with iOS and Android tablets.
Some early reviewers have also criticized the tablet’s unfamiliar new operating system, which eliminates the traditional Windows start menu and program folders in favor of the touch-focused “Metro UI” interface. Other reviewers noted that some users would be uncomfortable with the Surface’s flat, ultra-thin keyboard, which functions more like a large touchpad than a traditional keyboard. Microsoft claims that users will be able to type at more than 50 words per minute after a slight learning curve. Another keyboard, with a slightly thicker keyboard with elevated keys, will also be available on launch.
Ballmer also emphasized the Surface’s ability to run two or more programs simultaneously – a feature that iOS and Android devices notably lack. Ballmer also claimed that the Surface would be a productivity device, better suited for typing and document creation than the iPad or Android tablets. Reviewers have also speculated that Microsoft would add dedicated Barnes & Noble (BKS: Charts, News) Nook e-reader support, due to its recent $300 million investment in the company. Whether or not the Surface would replace the Nook, an Android device, has yet to be announced.
To date, Microsoft has had a poor track record with introducing new hardware to the market. The company’s Zune MP3 player, released in 2006, was intended to be an “iPod killer”, but has since been discontinued. Microsoft’s Kin smartphone, released in 2010 to counter the iPhone, lasted only three months before being pulled off the shelves. In both cases, the company took huge risks to disrupt a saturated marketplace. Microsoft’s bet with the Surface appears to be a continuation of that strategy.
Microsoft has had more success in the video game market with its XBOX and XBOX 360 consoles, which are sold at a loss in order to increase software and online gaming subscription revenue. The success of its Kinect peripheral also helped boost the strength of its video game division.
Shares of Microsoft trade at 10 times forward earnings, with a 5-year PEG ratio of 1.3, making it one of the cheapest blue chip tech stocks on the market. The stock pays a quarterly dividend of 20 cents per share, which has been steadily increased since its inception in 2003. Shares have traded sideways in a narrow range ever since the departure of visionary CEO Bill Gates in 2000.
Other News About Microsoft
Will Microsoft’s Surface storm the workplace?
Is the Surface an ideal work machine?
Microsoft’s Surface Tablet Aims for Productivity
Can Microsoft reclaim the workplace from Apple?
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