Tablet Market: Can Microsoft Speed Up? - Analyst Blog

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A new survey on tablets released by IDC this week shows that the tablets market continues to expand at a healthy rate. Easily exceeding numbers for the entire first half of 2012, tablet shipments for the first quarter of 2013 came in at 49.2 million units for the first quarter of 2013. The demand for devices with smaller screens shows no sign of letting up, which means that prospects for tablets remain bright.

Moving into the list of the top five tablet makers for the first time is Microsoft Corporation ( MSFT ) at fifth place. Sales of its Surface RT and Surface Pro tablets together amounted to a total of around 900,000 units. A large number of these were Surface Pro units which are being sold in the U.S. and Canada since February.

The company has said that it is looking to increase the regional distribution of both the Surface RT and the Surface Pro. Taking into account figures across all vendors, Windows 8 and Windows RT sales together amount to 1.8 million units.

Apple, Inc. ( AAPL ) continues to lead the tablet pack. The iPad maker beat forecasts of 18.7 million units to end up with a significantly higher 19.5 million units. Even so, the company's market share dropped below 40% in the first quarter of 2013. This is also significantly lower than the 58.1% market share it held a year ago.

Meanwhile, in second place, Samsung grew year over year by a whopping 282.6%. Its total worldwide market share has grown to 17.9% from 11.3% in the first quarter of 2012.

At the third spot, in place of last year's occupant Amazon.com Inc. ( AMZN ), we have Asustek Computer Inc. This despite the fact that Amazon has experienced year over year growth of 157% for its Kindle Fire devices. Asustek seems to have surpassed other tech heavyweights like Hewlett-Packard Company ( HPQ ) and Dell Inc. ( DELL ) at the tablet game.  

However, setting aside the Surface products, other Windows 8 and Windows RT tablets are continuing to find the going rather tough. A Program Manager at IDC has drawn attention to the fact that rumours about Windows RT and Windows 8 tablets with smaller screens have been doing the rounds for some time now. But this doesn't look like the panacea for Microsoft's tablet worries. The bigger challenges for the company are lower cost competition and consumer messaging.

If Microsoft manages to solve these issues, simultaneously providing devices with smaller screen sizes, it may emerge as a winner in the days to come. This is particularly significant in a market which seems to be favoring two avenues of growth. First up are the 7 to 8 inch devices such as the iPad Mini and the Galaxy Note. Then there are the lower-priced tablets such as the Kindle Fire and the Nexus 7.

Currently, Microsoft's two key offerings, the Surface RT and Pro tablets are unable to fit into any one these two categories.  And Microsoft has still made little headway into a market which is slowly outweighing the traditional PC segment.  The Surface Pro has sold only 700,000 units in its first quarter, belying the huge publicity it received as support. This is a paltry amount when compared to the iPad's three million in the quarter when it was first launched.

Going by IDC's figures, the first quarter of 2013, two tablets were sold for every three PCs sold. This means that if the tablet market continues to grow at its current rate, tablets will overtake PCs by the end of the year. What Microsoft needs urgently is a device at a significantly lower price point, say $200.

However, with the lion's share of Microsoft's profits still coming from Windows and Office licenses, a cheaper product seems unlikely right now. But if it wants to move up the tablets charts, this could be the only option the software giant has.



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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 The NASDAQ OMX Group, Inc.



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