Microsoft Corporation’s (MSFT) Surface Laptop Takes Aim at Apple (AAPL)

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Microsoft Corporation (NASDAQ: MSFT ) has been under fire for letting its Surface line of portable devices languish. Once groundbreaking, products like the 2-in-1 Surface Pro now face competition from traditional PC manufacturers and Apple Inc.'s (NASDAQ: AAPL ) iPad Pro. On the low end, Chromebooks are devouring the educational market, threatening Windows and Office sales.

Microsoft Corporation's (MSFT) Surface Laptop Takes Aim at Apple (AAPL)

Source: Microsoft

In MSFT's last quarter, Surface revenue dropped 26% as sales slid amid the fierce competition and lack of product updates. Yesterday in New York, Microsoft unveiled its response: the new Surface Laptop running Windows 10 S.

Windows Laptop Market Under Threat

Microsoft released it's first laptop-like PC in 2015 with the Surface Book . But this was still a hybrid device, with a removable display that became a Windows tablet. It's a powerhouse, but carries a hefty $2,399 starting price, making it a niche player.

That left Apple to continue its dominance of the mainstream premium laptop market with models ranging from the $999+ MacBook Air to the $1,499+ new MacBook Pro. On the low end, Chromebooks running Alphabet Inc's (NASDAQ: GOOG , NASDAQ: GOOGL ) Google Chrome OS continue to be a threat, especially in the educational market.

Laptops have been outselling desktop PCs for more than a decade. With Apple outperforming a declining PC market (largely on the strength of its MacBook line laptop sales) and Chromebooks growing in popularity, MSFT faces a shrinking market for its Windows and Office software.

MSFT Launches the Surface Laptop

Yesterday in New York, Microsoft fired back. The new Surface Laptop and Windows 10 S serve notice to both Apple and Google that MSFT is not going to sit still and watch its market continue to erode.

Yesterday's event was billed as an educational one and the company was clearly gunning for Chromebooks with Windows 10 S.

Microsoft's first traditional laptop ships with the new operating system that is designed to take on Google's Chrome. Windows 10 S (what we thought would be called Windows Cloud) is what MSFT describes as a "streamlined" version of Windows. It can only run apps downloaded through the Windows Store, integrates with OneDrive for cloud storage and supports Office 365 - with the full Office suite coming to the Microsoft Store. Microsoft Edge is the default browser. It's secure, runs on low end hardware and MSFT says its hardware partners will be releasing Windows 10 S laptops starting at $189.

Take that, Chromebooks.

Taking on Apple's MacBooks

Then there's the Surface Laptop itself. At a starting price of $999, it's not going to be displacing many $250 Chromebooks. MSFT is leaving that goal to its OEM partners.

But the Surface Laptop has Apple's MacBook business firmly in its sights. Microsoft designed it as a premium, high performance laptop. The aluminum case is complemented by an Alcantara fabric keyboard and deck, in a choice of colors. Despite a 13.5-inch PixelSense display with touch and stylus support, and 7th generation Intel Corporation (NASDAQ: INTC ) Core 15 or Core i7 CPUs, it weighs just 2.7 pounds.

Although it ships with Windows 10 S - making the Surface laptop an ultra-premium Chromebook competitor - it can be upgraded to Windows 10 Pro (free for 2017, after which that upgrade will cost $49).

And Microsoft is not pulling any punches about who the intended target of the Surface Laptop is. During the unveiling, the company bragged that its new laptop is has longer battery life than any MacBook air (MSFT claims 14.5 hours) and that it is faster than a Core i7-equipped MacBook Pro. It's also lighter than a MacBook Air. In addition, unlike Apple, Microsoft kept the USB 3.0 port so the new laptop is compatible with most accessories and peripherals without the need for dongles.

That $999 starting price is the same as Apple's cheapest laptop, the 13-inch MacBook Air. It can be spec'ed up to a Core i7 with 16G of RAM and 512GB of SSD storage for $2,199. That's $300 less than a similarly equipped 13-inch MacBook Pro.

With the Surface Studio all-in-one desktop and the new Surface Laptop, MSFT is taking aim at an Apple that has been beating the PC market despite premium pricing and falling behind on upgrades.

And Windows 10 S is a solid shot at Chrome OS and winning back the education market. Next, MSFT has to update the Surface Pro (the Surface Pro 4 was released in 2015) to put out the fire in its pro tablet line, then wait to see if consumers are willing to move on from MacBooks and Chromebooks, given a compelling Windows alternative.

MSFT is taking Surface Laptop pre-orders now , with shipment starting June 15.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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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.

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

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