Microsoft Likely to Unveil Updated Surface Devices This Fall

Microsoft MSFT recently sent out invites reading “Save the date.10.02.2019,” featuring stylized Windows logo.

Notably, Microsoft had hosted a similar event last fall, in New York City. At last year’s event, the company expanded its Surface family with the addition of new products — Surface Laptop 2, Surface Pro 6, Surface Studio 2, Surface Headphones, among other devices.

Traditionally, Microsoft annually updates its Surface Laptop and Surface Pro devices, which hints that it is likely to unveil Surface Laptop 3 and Surface Pro 7 at this year’s event.

Coming to price performance, shares of Microsoft have returned 35.2% year to date, outperforming the industry’s rally of 28.8%.

What to Expect?

The latest invite with stylized Windows logo suggests that the tech giant might roll out updated versions to its existing Surface devices. Windows logo might imply that Microsoft is innovating Surface devices with Cortana-infused intelligent Windows capabilities. Moreover, the company’s focus on enhancing hardware by integrating robust software capabilities is likely to reflect in the new Surface devices.

Reportedly, Surface Laptop 3 and Surface Pro 7 are anticipated to be USB-C port compatible, an improvement in data-transfer over “magnetic Surface Connect charging port.” However, rumors suggest the fresh line of products might not be Thunderbolt 3 compatible devices yet. Nevertheless, the company is anticipated to roll out devices with improved design, data security, hassle-free log-ins, enhanced storage capabilities, and performance with latest processors.

We believe that the plausible launch of new products just before holiday shopping season is a smart decision. This move is also in sync with the company’s attempt to take on Apple AAPL, which dominates the market with Macbook Pro and Macbook Air. Reportedly, iPhone maker is likely to unveil new iPads, among other devices at its September event (likely to be scheduled on Sep 10 or 11).

Key Insights

Microsoft is strengthening almost all its services, hardware and software alike, with advanced AI and machine learning tools. We believe the new products will help the company gain market share, going forward.

Further, Microsoft dominates the enterprise laptop market with Windows OS enabled Lenovo, HP and Dell laptops, to name a few. The efficiency and user friendly features of Windows OS remain the key catalysts behind Microsoft’s dominance and are well poised to take on Alphabet’s GOOGL division Google strengthening “Chromebook Enterprise” program.

Moreover, an improving trend in PC shipments favors business prospects of Microsoft’s Surface devices. Per Gartner’s preliminary data, PC shipments in the second quarter 2019 improved 1.5% year over year to 63 million units. Going by the IDC report, shipment rose 4.7% on a year-over-year basis and totaled 64.9 million in the period under review.

Additionally, the new Surface devices debuting around fall, ahead of holiday season presents consumers with quality choices. In fact, Microsoft’s Surface revenues surged 14% (17% at cc) in fourth-quarter fiscal 2019 on a year-over-year basis on the back of strong performance of the latest editions. Overall, More Personal Computing Revenues, primarily comprising Windows, Gaming, Devices and Search businesses, were up 4% (up 6% at cc) year over year to $11.3 billion (representing 33.5% of total revenues).

The tech-giant is also offering back-to-school season-inspired discounts on its Surface devices, which is expected to bolster sales. As part of the sale, Surface deals include — discounts of up to $500, $200 and $300 on Surface Book 2, Surface Pro 6 and Surface Laptop 2, respectively.

Wrapping Up

Microsoft is striving to expand business in all the operating domains with robust strategies comprising acquisitions, partnerships, collaborations and product launches, among others.

We believe the new product roll outs and back-to-school discounts will aid the company in bolstering its competitive strength in the direct consumer market. Moreover, the higher hardware sales will eventually benefit the top line, going ahead.

Zacks Rank & Another Key Pick

Microsoft currently carries a Zacks Rank #2 (Buy).

Another top-ranked stock in the broader technology sector is Anixter International AXE, flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Anixter is currently pegged at 8%.

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