Microsoft's Surface: Critical to Windows 8 launch as PC hedge

Microsoft's Surface: Critical to Windows 8 launch as PC hedge

Summary: Morgan Stanley analyst Adam Holt expects Microsoft to move 3 million Surface units in 2012 and 9 million in 2013.


Microsoft's Surface tablet is more than just some side project to push partners to design better hardware. The Surface is Microsoft's biggest and best hedge against a declining PC market.

How good of a hedge the Surface becomes remains to be seen. However, analysts are expecting the Surface to at least offset what could be weak PC sales.

For instance, Morgan Stanley analyst Adam Holt expects Microsoft to move 3 million Surface units in 2012 and 9 million in 2013.


Holt said in a research note:

Win 8 /Win RT is Microsoft’s first concerted effort in the tablet market and we are cautiously optimistic that the tablet-oriented OS, Office integration, and enterprise-friendly features will help Microsoft gain share in the tablet and hybrid market—which will still be incremental to consensus estimates, and possibly the multiple. Our survey in May 2012 of 7,500 consumers suggested that 25% of consumers expect to buy a Windows tablet at any price and 30% would buy a Windows tablet at parity with an iPad. While Intel has said it expects over 20 Win 8 tablet designs based on its architecture, recent news suggests that the release of x86-based Win 8 tablets will be delayed...Surface is promising, with its innovative Touch Cover keyboard, light casing, USB ports and Office but distribution and consumer adoption is still largely a wild card.

Despite those wild cards, Holt is expecting Microsoft's Surface along with an army of tablet partners can give it 14 percent of the tablet market in 2013, up from 4 percent in 2012.

Also: Microsoft's Windows 8 biggest wild card: The hardware | Microsoft: Radical shift to devices, risk ahead of Windows 8 | Windows 8 pricing for system builders said to be roughly the same as Windows 7 | All Windows

Holt is also betting that Surface gross margins will be 9 percent.

Those gross margins may be a bit dicey. Why? Microsoft's tablet gains will almost solely ride on the Surface because hardware partners are pricing high on Windows 8 devices.

ThinkEquity analyst Yun Kim said that enterprises want to go with Microsoft's mobile platform, but price will matter to Surface sales. Kim said:

Given that all OEM versions of Windows RT-based tablets are priced well above $500, we believe initial success of Windows RT will be determined by the pricing of Microsoft's Windows RT-based Surface tablet. In our view, MSFT is facing a pricing dilemma with its Surface tablet. We are maintaining our thesis that lower priced Surface tablet could result in revenue growth materially lagging unit growth, while higher priced Surface could see lackluster unit sales.

Bottom line: The Windows 8 launch will be critical, but all eyes should be watching Surface sales.

Topics: Mobility, Hardware, Microsoft, Tablets, PCs, Windows

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  • They should have called it Pixel

    ... or Rectal.... pixelated rectangle, or rectangular pixel.
  • Overpriced And Underpowered

    So far, Microsoft has been unwilling, or unable, to provide any assurance that Surface will not be a mediocre product at a mediocre price--in other words, that it will break the pattern of Microsoft's previous string of mobile failures.
    • Troll

      Overpriced? They haven't announced the price yet. Troll much.
      Announcement on price should be later today.
      • Pricing here

        For the WinRT only version.
        • RT/Surface Starting at $500, $630 for Real Keyboard too

          Ouch. That's a bit steep for my blood. My 13' Lenovo with 8 hr's runtime has got some good long life in it with the entry fee being over $600.

          Sure hope MS can call in a lot of app developers because at a price point the same as an iPad, I've got to believe that anyone having to rebuild their s/w base to RT will be lured into Apple's expansive library of apps and many will prefer to buy an entry iPad and Zagg keyboard instead.

          The Apple option would certainly be on my list of options at the price points at the winsupersite article.

          Looks like it'll be slow out of the gate sales for Surface to me, not a lot of sales and a tight margin ....
          • I don't know, I honestly believe that MS will do quite well.

            I feel that with Office on their Surface, they will probably at the very least be even with Apple in marketshare with 18 months, unless something ends up being wrong with the UI..

            MS has a lot to offer just like Apple does. Just my $.02....
          • While not a fan of Windows 8

            I suspect they should do at least fairly well. That being said expecting even market share with Apple in 18 months is a VERY lofty goal.
      • See Hemo2 comment

        Pricing is already known... but have you seen the horrible advertising campaign?! As usual with a MS ad, they don't show ANYTHING about what the device will actually do, except people attaching the $120 keyboard, and a couple swipes of the Metro interface. They don't show Office, they don't show programs loading, or people doing things with it. Just throwing around the device and slapping keyboards on it!!! Rediculous.

        If that silly keyboard is all that will differentiate their tablet from the rest, they're going to have real problems since the price is so high.
        Technical John
        • well...

          As a geek/nerd/IT guy for almost two decades, I agree that the advertising is horrible. But with that said, I also think the advertising is brilliant--Apple proved that people buy a tech gadget based on "coolness" factor, the perception of the product's value, not the product's usefulness.

          That said, for the similar price to an iPad, you get a LOT more with Surface RT, and there are reasons a-plenty to believe that it'll be the ideal tablet for students, teachers and families.
          • That old saw

            >Apple proved that people buy a tech gadget based on "coolness" factor, the perception of the product's value, not the product's usefulness.

            Can we retire the "people buy Apple stuff just because it's cool, not because it's useful" meme already, please? It's been dead for a long time.
          • We'll retire it when it stops being true...

            However, other than us geeks, most people only buy Apple products because they're cool. On the Microsoft side of the equation, most people (again, other than geeks & enterprise) only buy Windows because it's preloaded on tons of PCs and it's familiar.
          • Most people buy what works for them

            I don't know a single person that purchased an Apple product because they cared what other people that about their purchase. They may have bought on the reviews of other people but they became repeat buyers because of their experience. Just because you think people buy simply due to the cool factor doesn't matter.
          • Opinion does not equate to fact

            Just because you think that Apple sells their products simply on the cool factor does not mean that old outdated talking point is true. Sure, some sales or due to cool factor but that applies to any product that at least some of their customers think are cool. Opinion also applies to your statement that you get a lot more with the Surface RT. There are pros and cons to both the Surface and the iPad and your opinion of what is a better value only applies to you.

            The ad is absolutely pathetic in mopinionon but marketing only gets you so far. They could have the worsmarketingng out there but if word of mouths is they are great they will sell. If actual consumers don't start spreading the word about the Surface being great then their sales could turn out as bad as their ad.
    • Over priced ?

      MS Bashers are everywhere these days.
      • Do you complain with that's said about the iPad?

        Just curious if you only care when somebody says it about an MS product? I am not calling it over priced myself mind you. Only people that have the right to determine the value of any product are those that have actually purchased.
    • Shop around

      If you shop around and compare iMac and PC side by side, then you will found that iMac are overpriced and underpowered comparing to PC.
      • Based on what?

        Unless you have purchased both your opinion on the matter is irrelevant. I have purchased both and while the iMac was about 30% more it was still a better value to me. Since it was my money being spent on those purchase only my opinion matters.
    • What?

      Overpriced? pricing is reasonable with the market, if not cheaper. Underpowered? Have you even payed attention that there will be two kinds of tablets - RT and Pro.
    • The price is right

      $499 for 32GB of storage and 2GB of RAM and Office 2012 student. This beats Apple at this price point. Windows 8 is smooth and fast and doesn't require any more than that. Couple this with office and nobody can match it. There are alternative programs to office but they are not office and can't even be compared! This is a good price point to start with. You have a superior OS, Office and quality hardware.
  • Those projections are both too optimistic and pessimistic

    Too pessimistic because many laptop PCs will qualify as "tablets" (all of the tablets with laptop docs) and as a result W8/WRT should take 50% of the "tablet" market next year, not 14%.

    Too optimistic because I really don't see the full advantages of W8 on tablets until the new Atom SOCs come out in 2H 2013. At 22nm quad core, those should allow full fan-less W8 tablets with keyboard docs that are as thin or thinner than the current ARM systems.

    I'm very curious about W8's lack of a 7in tablet and how that will affect things.