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Microsoft Tablet: A New Challenge Enters the Arena

June 22, 2012 | About:
Muhammad Bazil

Muhammad Bazil

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After a slowdown in popularity of consumer electronics, Microsoft (MSFT), one of the world’s largest software makers, announced its long awaited response to Apple’s iPad. At a press conference, Microsoft outlined its plans to officially enter the tablet arena as a hardware and software provider. The move comes contrary to the company’s original plans to enter the market through hardware partners such as HP’s Slate tablet which was later scrapped.

The company has instead opted to adopt a similar strategy to Apple’s (AAPL) of owning both the hardware and the software. This wouldn’t be the first time the software giant produced hardware having created the Zune music player, and more successfully the Xbox 360. Because Microsoft derives most of its profit from hardware revenues, the move has not come as a surprise to partners.

The new tablet is quite impressive, sporting roughly the same dimensions and screen size as Apple’s iPad and comes with a built in keyboard kickstand. Versions come in an ARM based processor, a similar one as used in Apple’s iPad, and an Intel version that runs desktop software. The ARM based processor will run a modified tablet version of Windows 8, and the Intel version will run the mobile version and desktop version. Variations also include flash memory of 32 gigabytes, and 64 gigabytes for the ARM based, and 34, 64 and 128 bits versions for the Intel model. The professional version of the tablet starts at roughly $1,000 – $500 more than Apple’s starting iPad. The company plans initially to sell the tablet online only, apart from Microsoft stores.

Markets React

One day after the announcement, markets responded positively, with shares up 1.14 points and a stock price at $30.98. The move was considered optimistic with Barkley estimating an increased share price of $36. They were later quick to point out the confusion consumers may face when trying to determine which tablet to buy, and why certain Windows 8 desktops don’t have the same features.

Analysis

With Microsoft being able to integrate their products into the tablet architecture, the benefits could outweigh the cost of isolating partners. For one, the company owns Skype and the Office Suite, both of which have large install bases and make perfect sense for business enterprises.

The question still remains, how does Microsoft adjust for mobile smartphones? With the Nokia agreement looking less optimistic than before, the company may need to adopt producing hardware to survive in the mobile industry. Still no other competitor has been able to put a marginal dent in Apple’s (AAPL) stranglehold, the closest was Amazon’s Kindle Fire which captured 16 percent of the market the previous quarter, but dropped to 4 percent after Apple released its latest tablet.

In my opinion, this will be a good start for the company and will lead to healthy revenues for the overall outlook. This does not lead to a game changer, and I predict nothing new will happen overnight. It’s not hard to remember Microsoft’s attempt at building a search engine to compete with Google. There is no doubt Bing is a great competitor and has some really impressive features, but it never unseated Google or made a huge affect, but in my view, 28.12 percent market share is nothing to scoff at.

Best case analysis of the software giant is of being able to maintain its footing with a minimum 10 percent market share. Overtime, the product line will mature and become part of a larger Microsoft ecosystem that may be integrated with Xbox 360s, Kinnects, Windows Mobile, and potentially Kindles or iPads.

It’s not uncommon for a flat or stale product to become part of a company’s big picture. One might note Apple’s failed attempt at cloud computing through its Mobile Me which garnered terrible reviews, and scorn from Steve Jobs. The service was later rebuilt and released as iCloud, now the entire backbone of Apple’s contacts, mail, photo streaming, music, movies, TV shows, and mobile cloud computing. A similar story would happen in the event Apple launches a TV to wild success, the early foundation would most certainly come from Apple TV, something that Steve Jobs referred to as a hobby.

I would say it’s perfectly fair for other providers to develop their own hobbies and try new things; it may just become a full time job, hold.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

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