Bloomberg News

Microsoft Seeks to Woo Tablet Customers With New Surfaces

September 23, 2013

Microsoft Corp. (MSFT:US) introduced two new versions of its Surface tablet, the software maker’s latest bid to challenge Apple Inc. and Samsung Electronics Co. in the hardware market after its first devices fell flat.

The new Surface Pro, powered by an Intel Corp. chip, is 20 percent faster and features an all-day battery with 75 percent more life, Panos Panay, the company’s Surface vice president, said at an event in New York today. The Surface 2 has a high-definition screen and 25 percent better battery life, and runs on an Nvidia Corp. (NVDA:US) chip based on ARM Holdings Plc (ARM) technology.

Microsoft jumped into the touch-screen tablet market, dominated by Apple’s iPad and models running Google Inc.’s Android software, in June 2012 with the announcement of its first Surface. Designed to keep its Windows software relevant as consumers shift to tablets from personal computers and laptops, the Surface instead generated such little demand that Microsoft took a $900 million inventory writedown last quarter.

Microsoft “bet the farm on touch and tablet,” said Wes Miller, an analyst at Directions on Microsoft, a Kirkland, Washington-based research firm. They’ve “got to move some serious tablets,” he said.

Thinner Covers

Microsoft said the devices will go on sale on Oct. 22. The Pro, which runs on Intel’s Haswell chip, starts at $899, and the Surface 2, the successor to the Surface RT, starts at $449. The company also introduced new, thinner versions of the device’s covers that come with built-in keyboards -- and one model boosts the tablets’ battery life even further. There’s also a docking station that lets the Surface Pro connect to a computer monitor and speakers.

“This is the most powerful tablet in the world,” Panay said of the new Surface Pro. “This thing’s a beast.”

The Surface 2 is priced at $50 less than its predecessor when it was introduced. The new Pro starts at the same price as the earlier model when it debuted. That may still be too high to attract more buyers, though Microsoft has packed more powerful chips and hardware into the Pro to try to make it a better value, Miller said.

“It’s going to be interesting to see how the market receives it -- they’re both still premium-priced devices,” he said. “They were inspired by Apple’s model, which is you create premium devices and premium accessories and you hope that people are willing to pay premium prices.”

Surface 2 comes with a copy of Microsoft’s Office applications, and both devices include free Skype Internet-based calls to landlines internationally, Skype Wi-Fi and free storage on Microsoft’s cloud service.

Little Traction

The Redmond, Washington-based company has thus far failed to get traction in the market. Surface accounted for 0.7 percent of the 44.3 million tablets sold in the second quarter, according to researcher IDC. The device was too expensive, riddled with software bugs and featured too few applications, Miller said.

Android controlled 62.6 percent of the tablet market and Apple had 32.5 percent, according to IDC. Android software is used in tablets manufactured by companies including Samsung and Sony Corp.

Tablet shipments will top those of PCs for the first time in the fourth quarter, IDC said earlier this month. Some 84.1 million tablets will be shipped, compared with 83.1 million PCs, the researcher said.

Microsoft entered the tablet hardware market in part because traditional manufacturers of Windows computers weren’t stepping up with compelling devices. Still, among Windows tablets with Intel chips, Surface is being outsold by vendors like Acer Inc. and Hewlett-Packard Co. (HPQ:US), IDC said.

Hardware Competition

While giving a boost to the Windows business, the competition hurts the prospects of Microsoft’s hardware unit, fueling opposition from investors, who have balked at the Surface writedown and Microsoft’s agreement to spend $7.2 billion on Nokia Oyj (NOK1V)’s handset unit.

“For Windows, Surface is less important as long as other people’s tablets do OK,” Miller said. The hardware challenge “poses an interesting conundrum given that Microsoft just bought a phone company.”

Microsoft said it sold $853 million worth of Surface tablets in the fiscal year that ended June 30. To sell more devices, the company has cut prices, and earlier this month it started offering at least $200 in coupons to its retail stores if customers traded in a used iPad.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net


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