Microsoft Vies for Tablet Share

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By mid-December, Microsoft Corp. (MSFT) plans to add more retail outlets from where its tablet, Microsoft Surface, will be sold. Further, Microsoft is transforming several holiday stores into permanent Microsoft retail outlets.

Microsoft Surface was launched worldwide on Oct 26, 2012, and a price tag of $499.0 makes it comparatively expensive. However, it combines both the functionality of a tablet and laptop. It comes with pre-installed Windows apps, SkyDrive cloud connectivity, High-Definition (HD) video, Xbox Music, games, a USB port, a microSD card slot and the productivity of Office Home & Student 2013 RT version.

Microsoft is very bullish about its tablet and is rapidly strengthening its global retail presence.  Microsoft is a late entrant into the tablet market and beating the competition here will be an uphill task. Other successful tablets such as Apple’s (AAPL) iPads, Google’s (GOOG) Nexus 7, Samsung’s Galaxy tablets and Amazon’s (AMZN) Kindle Fire already have a strong presence in the market.

Thus, Microsoft is leaving no stone unturned to promote the product. The company is offering Surface at all Microsoft retail stores in the U.S. and Canada. Surface is also available online in Australia, Canada, China, France, Germany, the U.K. and the U.S.

According to IDC, 27.8 million tablets were shipped worldwide in the third quarter of fiscal 2012. Apple led the race, as it shipped 14.0 million units and captured 50.4% of market share. Samsung and Amazon had 18.4% and 9.0% share of the tablet market, respectively.

Gartner forecasts tablet usage to reach 665 million globally by the end of 2016. Further, as per IDC’s forecast, tablet shipments may touch 282 million units by 2016.

Microsoft is still battling the slump in the PC market, which is showing no signs of recovery yet. Although it has been a laggard in the tablet space, there is still time to create its own niche. Combining the functionality of tablet and laptop, Surface can create interest and attract new tablet users. Hence, expansion in the retail space makes sense. However, to succeed in the already crowded tablet market, it needs to reconsider Surface’s pricing, which could be expensive for some.

Microsoft reported revenue, excluding deferrals, of $16.01 billion in the first quarter of fiscal 2013, which was down 11.4% sequentially and 7.9% from last year. The revenue also missed estimates by 2.5%.

Microsoft, Apple, Google and Amazon all have a Zacks #3 Rank (Hold).

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