Microsoft Surface to Expand - Analyst Blog

By Zacks Equity Research,

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Microsoft Corp. ( MSFT ) will launch the latest version of its tablet Surface, Surface RT with Windows RT in Japan, Mexico, New Zealand, Russia, Singapore and Taiwan. Further, it will launch its Surface Pro with Windows 8 Pro in Australia, China, France, Germany, Hong Kong, New Zealand and the United Kingdom in March.

Microsoft Surface was launched worldwide on Oct 26, 2012, with a price tag of $499.0, which makes it comparatively expensive. However, it combines the functionalities of a tablet and a laptop.

Microsoft is offering two versions of its Surface tablets to the consumer, one with Windows RT and another with Windows 8 Pro. The Surface RT is more of a tablet, which has some features of a laptop. On the other hand, Surface Pro is a laptop, which comes with some features of a tablet. Thus, Microsoft wants to plug the gap for those consumers who want both in a single device.

Microsoft is very bullish about its tablet and is rapidly strengthening its global retail presence.  Microsoft is a late entrant into the tablet market and beating the competition at this point will be an uphill task. Other successful tablets such as Apple's ( AAPL ) iPads, Google's ( GOOG ) Nexus 7, Samsung's Galaxy tablets and Amazon's ( AMZN ) Kindle Fire already have a strong presence in the market.

According to a report from IDC, 52.5 million tablets were shipped in the fourth quarter of 2012. Apple shipped 22.9 million units, retained the top position, and gained 43.6% of market share. Samsung, Amazon and others are lagging behind. However, Samsung witnessed a 263.0% jump in its market share from the year-ago quarter. 

As per IDC's forecast, tablets may see an uptrend and sales may touch 282.7 million units by 2016. Windows-based tablets may capture 10.0% of the market in the same time period.

Microsoft is still battling the slump in the PC market, which is showing no signs of recovery. Despite Microsoft's late entry, there is still time to create its own niche. Combining the functionalities of a tablet and a laptop, Surface can create interest and attract new tablet users. Hence, expansion of its retail base makes sense. Microsoft badly needs success in the tablet segment as this is the only way to counter the secular decline of in its core PC business.

Microsoft reported revenues, excluding deferrals, of $21.46 billion in the second quarter of fiscal 2013, which was up 34.0% sequentially and 2.7% from last year, in line with our estimates. All except the Entertainment & Devices segment grew both sequentially and from the year-ago quarter. Entertainment & Devices were down year over year.

Microsoft has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AAPL , AMZN , GOOG , MSFT

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