Is it Time to Sell This Giant on Negative Sentiment?

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

Microsoft (NASDAQ: MSFT) is all set to release its latest foray into hardware, the Surface Pro. Surface Pro will be a more expensive and loaded version of its predecessor the Surface RT, which Microsoft released in the fall. The device will be available at a much higher price point as compared to RT. The software giant plans to target the consumers of Apple’s (NASDAQ: AAPL) iPad and Google’s (NASDAQ: GOOG) Nexus with Surface Pro. Sadly for Microsoft investors the initial reviews of the tablet have been not been good. Despite the criticism from the market, I believe that Microsoft has hit the right targets with Surface. Therefore the device only warrants better valuations and Microsoft is still a strong buy.

Surface Pro

Microsoft will release its first Windows 8 tablet on Saturday. The Surface Pro has the same make and finish of the RT and carries a 10.6 inch display. The hardware is more loaded to accommodate the higher performance requirements of Windows 8 as compared to RT. It has an Intel Dual-core 1.7 GHz Core i5-3317U processor and 4GB DRR3 memory. The device has a 1080 display, a significant improvement over the RT. The only user concern can be the 64 GB memory on the low cost model because almost 65% is consumed by Windows 8 and only 23 GB is available to the users.

These hardware improvements not only push up the price of Surface Pro, but also the weight and battery consumption. The newer model is almost 910g in weight, almost 26% heavier than the RT. The real concern is the limited battery time of 4-6 hours, which is not sufficient to compete with other tablets giving 10 plus hours of battery life. This puts it to a great disadvantage to Google’s Nexus and Apple’s iPad, devices Microsoft hopes to compete with. 

To sum it up, the Surface has more functionality than the iPad or the Nexus. However, both devices have an existing user base and longer battery life, which give them an edge over the surface. 

Critical reception

To put it lightly the critical reception has not been good. According to CNET, the battery life is ‘disappointing’ and the lack of ports a major concern. CNET gives this gadget a 3.5 star rating, citing the lack of free storage on the 64 GB model and high price points a major concern. However, the reviewer also praises its ability to provide a laptop and ultra-book experience on a tablet that Nexus and iPad are unable to provide.

CNN Money raises concerns over the heavy weight and its inability to give the ‘full’ Windows 8 experience. On the other hand they appreciate the ability of Surface to run legacy Window applications and provide a secure multifunction feeling that is still lacking with most alternatives.

Bottom-line

The Surface Pro has been designed to compete with high-end iPad and Nexus. It’s not the battle of one ‘hardware’ against another, but actually a competition to decide which ecosystem can effectively deliver a comprehensive experience. Despite the techie backlash, I am optimistic about Surface Pro and believe that it hits a number of important targets.

        I. The high price points have been criticized by the market, but it was a necessity to save the Windows ecosystem. The angry reaction by Lenovo and other OEMs over the Surface threatened bigger problems for Microsoft than just soft tablet sales. These prices ensure that OEMs are giving a fair shot at selling their Ultrabooks, which in turns generates licencing revenue from Microsoft.  

      II. The aim of Surface was never to out sell iPad or the Nexsus for that matter. The real aim of Microsoft was to beautifully showcase their Windows 8 touch based operating systems. The device has successfully achieved this target and it ensures that Microsoft’s Windows can go forward into the next era of touch based computing.

    III.  An important factor with all handhelds is the ‘Cool factor.’ Maybe it has a poor battery life and not enough ports, but the Surface definitely has the cool factor. It will display the Windows 8 to the ever growing younger user base and delivers a message that Windows can be pretty and cool. The Surface will make it easier for Microsoft OEM’s to sell their Ultrabooks and that at the end of the day should be Microsoft’s target.

Therefore I believe the Surface has successfully achieved its basic goals even if it has not received universal love. The device will only strengthen Microsoft’s position and ensure more market penetration for Windows 8. I am even more optimistic now about Microsoft maintaining its dominant position in operating systems and therefore reaffirm my buy rating. Apple and Google investors should consider Windows 8 real threat to their OS domination plans and I believe the comparisons should be more focused on the operating systems rather than hardware. 


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