Here Comes the Surface Mini!

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If Apple’s (NASDAQ: AAPL) iPad, the current gold standard of the tablet market, can be successfully shrunk to capture greater market share, it should come as little surprise that Microsoft (NASDAQ: MSFT) is rumored to have already begun plans for a similar move. Where the latest entrant to the tablet market will differentiate its smaller version is in targeting the device at the gaming community – enter the Xbox Surface. Additional rumors suggest that the company is also planning an even smaller version, as in smartphone size, for a few years out. Overall, while Microsoft has been quiet about initial sales figures for the Surface, the moves being made by the company make it an absolute must-own for your core portfolio.

The Move to Hardware

Much has been written about Microsoft’s new Surface tablet, but the theme for the last few days seems centered around the fact that the company is getting a stronger profit margin than Apple has achieved on the iPad. For the sake of comparison, Microsoft is hitting a 53% profit margin as compared to the 50% measure that Apple is getting. While this does not seem like a staggering distance, fellow Fool, Tim Brugger, points out “with as many as 1 billion mobile computing units -- smartphones and tablets, in particular -- expected to be sold in 2013 (according to Gartner Research), 3% adds up in a hurry.”

Mr. Brugger also points out that Microsoft is very adeptly allowing Nokia (NYSE: NOK), Samsung and HTC to go first into the breach with smartphones running Windows 8. As bugs, glitches and consumer peccadillos are sorted out, Microsoft will then be able to enter the marketplace with a fully vetted, and hopefully advanced, product. The Surface Super Mini will likely form an important part of Microsoft’s comprehensive hardware lineup, so the fact that it is taking the time to “perfect” the product is promising.

The Xbox Surface

While the Xbox has been Microsoft’s most, if not only, successful hardware launch prior to the Surface, the company has remained on the sidelines in terms of handheld gaming devices. Where Nintendo and Sony (NYSE: SNE) have embraced the segment, Microsoft has shown no interest, despite the general success of Xbox. In fact, Xbox has been so successful that the company is branding its new music service with the Xbox moniker.

The introduction of tablets has, of course, significantly changed the very nature of the handheld gaming experience. While dedicated devices tend to offer richer experiences, allowing them to remain competitive, games for these devices tend to be very experience when compared to the app-based games available for most tablets. By entering the tablet end of this market segment, Microsoft gives itself the best chance of success as app-based games tend to be developed much more quickly.

Despite the branding and gaming capability, the smaller Surface will still be able to perform all of the grown-up tasks that are helping the new launch to meet, or beat, expectations. Unlike Apple, which cannot stop breaking its own arm patting itself on the back over explosive sales of everything, Microsoft has taken an understated stance on sales figures. This is in keeping with what investors have come to expect from Steve Ballmer, but a look beyond official statements suggests that the Microsoft tablet is selling as hoped – not outrageously fast like an Apple release, but with a steady flow.

The Trade

While shareholders and critics alike wait to see if the recently reinvented Microsoft can break free from its stagnant and stodgy image, the company is making the right moves to become quickly relevant across a wide range of product lines. I am certain that my Apple-loving commentators will use the space below to explain why Apple is just too awesome to believe, but my belief that Microsoft is a must-own stock is not a pan of Apple. In fact, if Microsoft can get up to speed as fast as it seems to want to, the tripartite competition between Microsoft, Apple and Google (NASDAQ: GOOG) is likely to benefit all three companies by making them push even harder.

Regardless of your particular loyalty to Apple, Google and someone else, Microsoft is doing what it needs to and has a place in your core portfolio.

Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple, Google, 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.If you have questions about this post or the Fool’s blog network, click here for information.

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