Under the Surface
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Most have speculated that the recently announced Surface tablet by Microsoft (NASDAQ: MSFT) is an attempt to enjoy significant revenues similar to what Apple (NASDAQ: AAPL) does on the iPad by emulating their front to back involvement in the device. This may be the case. However, before coming to this conclusion one must ask another question first. Why isn't there a Surface tablet with an Atom processor in it?
It could be that Microsoft doesn't think Clovertrail, the dual-core Atom processor, has the right combination of attributes to make a competitive tablet. The problem with this line of thinking is that at Computex, the consumer electronics show that was held in Taipei last week, the story was about all of the tablets that contained Intel (NASDAQ: INTC) processors. Most of those contained Intel's Atom processor. The enthusiasm amongst vendors for ARM (NASDAQ: ARMH) based tablets was far lower than it was for Atom.
There are obvious reasons for this. First, most of the computer manufacturers are used to dealing with x86 and Intel. Also, there is likely some trepidation concerning Windows RT for ARM, which isn't compatible with Windows 8 and the legacy software coded for Windows. It is a big jump and only a few like ASUS want to jump in right away.
This brings us back to Microsoft. They have spent significant effort developing a version of Windows to run on tablet devices. They have gone to substantial effort to port quite a lot of code to run on the ARM processor architecture. W most of the hardware vendors decide to sit on the sidelines and see if it will work out? Microsoft had no choice but to get involved.
They could have chosen to work with their customers like Intel has to get more devices on the market more quickly, but they chose another way. Instead, they decided to take full control of producing a device and a marketing campaign. They may have decided to go this way because they liked the job their marketing partner was doing for Internet Explorer 9. They may have also just decided that this was a potential opportunity to increase their profit per unit sold, ala Apple. They can do this, at least in the short term, and upset a minimal number of their partners. They aren't competing on Atom based tablets, and their only x86 product runs on a ultra low voltage Core i5 chip, which wasn't very common in tablets at Computex either.
Looking at what Microsoft's hardware partners are doing, it seems inaccurate to characterize the Surface tablet as one that will substantially undermine their relationship with hardware partners. They have chosen their products to minimize their direct competition with the other hardware being developed. This is more of a move just to ensure that Windows 8/RT, which they have a large investment in, has the best chance possible to compete in the tablet/netbook/ultra-portable market. They most certainly wouldn't mind 'iPad-like' revenue, but it seems unlikely that is their primary goal.
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