It May Be Time For Microsoft To Cancel Surface RT
Smartphones and tablets based on Microsoft's Windows operating system aren't selling very well. There is a preference in the market for Android. In Europe, we're also seeing lackluster demand for Windows-based products.
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Microsoft did in fact sell around 1.5 million Surface tablets since launching last year, split between 1 million RT tablets and around 400,000 Surface Pro sales. Investors should note that the Pro was not released until last month. The Pro is also very highly priced, was released in limited quantities, and received lackluster reviews. Total unit sales are well-below initial expectations (there were 3 million shipped), but Microsoft is late in entering the tablet market.
Late could probably be better than never. Apple (AAPL) leads in market share with its iPad, but found the need to release a mini iPad to retain market share.
Microsoft’s shares reflect the limited upside in growing in the mobile space. Dividends are supported by continually strong sales of Office productivity and server software. For shares to command a higher price-earnings multiple, Microsoft needs to prove its relevance in mobile devices.
Cancelling RT and Focusing on Pro
To achieve this seemingly uphill battle, Microsoft might need to do away with RT. Initial sales of the RT are weak, while the Pro appears to have sold at a more rapid rate. Consumers do not want a scaled-down tablet running on an ARM-based (ARMH) processor. The opinion of cancelling RT is not unique: IDC mentioned this notion too. The RT Tablet is also powered by NVIDIA (NVDA).
The scaled-down operating system appears to weaken the tablet’s strengths: the ability to run x86-based Windows software. Microsoft may have believed that it needed a lower-priced device to compete in the market place. Canceling RT and going “all-in” with Pro would restore Microsoft’s relationship with Intel (INTC). The focus would also bring leadership to hardware manufacturers in building Windows 8-based solutions.
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