Markets

Microsoft's Bringing the Surface to 25 New Countries: Is It the Right Move?

Surface Pro 3. Source: Microsoft.

This week, Microsoft doubled down on its beleaguered Surface tablet by announcing it will expand to 25 more countries by the end of the month. In the aftermath of the $900 million Surface RT writedown, and a recent analysis by Computerworld that estimates Surface's losses at $363 million last quarter, many people -- even here -- wonder if the company should abandon the product.

However, expanding this product's reach appears to be a good move for the company. Not only will this increase sales, but if the Windows Phone is any indication, these countries are more Microsoft-friendly than the United States. Of the 25 announced companies, 16 are in Windows Phone-friendly Europe.

About that Computerworld report

Nothing against Computerworld's report: First, Microsoft didn't provide a cost of revenue figure for the Surface, so it is impossible to get an exact number on the losses. Computerworld did an excellent job of piecing together its cost of revenue and coming to the aforementioned $363 million loss. However, what's unknown is how much of the cost of revenue is assigned to losses from its decision to not follow through with shipping a planned Surface Mini.

And without that critical piece of information it is rather hard to ascertain if the Surface is actually performing better on a quarter-over-quarter basis or not. And, to me, harder to come to decisions on whether to kill a product entirely.

Europe loves the Windows Phone ... well, sort of

If the smartphone market is of any indication, Microsoft may have a more sympathetic crowd than in the U.S. While Windows Phone holds a minute share in the U.S., with many analysts pegging its market share at less than 2%, Kantar Worldpanel reports E-5 (a group that includes U.K., Germany, France, Italy, and Spain) Windows operating system market share is approaching double digits -- 8.4% as of May.

It's no wonder those five countries are on the expansion list. Microsoft finds a pre-installed base of consumers that are familiar with its ecosystem and brand. That should help boost sales for the Surface. And while Microsoft is relegated to third place there -- trailing Google 's Android and Apple 's iOS -- a near 10% European market share in tablets should reinvigorate the product.

However, saturation abounds

Another issue Microsoft faces in its tablet ambitions isn't competition from a competitor, but falling demand for tablets. Although Tim Cook will gladly tell you that Apple's iPad is its fastest-selling product, its revenue is down nearly 5.5% over the last four quarters on a year-over-year basis.

And it is not just Apple, BestBuy 's CEO Hubert Joly was recently quoted as saying tablet sales have cratered in part because of a revival of laptops and two-in-ones (tablets that can function as laptops) -- although very quickly thereafter, Hubert Joly pointed out that he considered the Surface a two-and-one device. He may like the Surface, but the greater U.S. market seems to not share his enthusiasm.

Final thoughts

Microsoft's had a tough go with the Surface. Matter of fact, many credit the Surface RT writedown with the loss of Steve Ballmer's job. And while many articles have been written about Microsoft killing the Surface, it doesn't appear that new CEO Satya Nadella is looking to do that. Instead, it appears the company is looking to compete by pushing into new -- and potentially favorable -- markets.

Leaked: Apple's next smart device (warning, it may shock you)

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here !

The article Microsoft's Bringing the Surface to 25 New Countries: Is It the Right Move? originally appeared on Fool.com.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

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.

In This Story

MSFT

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More