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Can Microsoft's (MSFT) Low Cost Tablet Knock Out Apple iPad?

Anirudha Bhagat
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Microsoft MSFT is set to roll out a fresh line of low-priced Surface tablets, per a Bloomberg report. This move is believed to be the company’s attempt to take on Apple AAPL which dominates the tablet market with its iPad.

Reportedly, Microsoft plans to unveil the new series of round-edged 10-inch tablets in the second half of this year, making way for the company to tap substantial market share during the Christmas and holiday shopping season.

The latest series of low-priced tablets will be equipped with Intel’s INTC processor and graphic chips. The company plans to introduce different variant of this tablet series, with capacity of 64 GB and 128 GB of storage, as well as models that have features to connect with LTE cellular networks.

Will Lower Prices Help Microsoft Dislodge Apple?

Well, it is difficult to predict. This is not the first time when Microsoft has tried to challenge Apple’s dominance in the tablet segment.

In 2012, the company made an attempt in this direction by launching a series of laptop-tablet hybrid devices — Surface RT — with a starting price of $499. However, due to certain flaws, it failed to grab customer attention.

According to users, this device, which was equipped with a weak or less effective version of Windows, Windows RT, did not support various apps. However, these apps otherwise enjoy smoother functioning on normal Windows OS.

Responding to negative consumer reviews, Microsoft came up with another exorbitant version — Surface Pro. Nonetheless, with the launch of the Pro series of iPads by Apple in 2015, crave for Microsoft’s Surface Pro faded soon.

Meanwhile, Apple continues to dominate the tablet market, and has even managed to increase shipments, as well as market share, over the past few quarters. This uptick is mainly being driven by the company’s continued focus on enhancing user experience with every launch.

Moreover, last year’s launch of the budget 9.7 inch iPad ($329) is increasingly getting popular among students and educational institutions, consequently driving the segment’s overall sales.

According to Bloomberg, Apple generated approximately $20 billion in revenues from iPad sales, in the past four quarters, while Microsoft’s entire Surface hardware business witnessed $4.4 billion of sales, during the same period.

Furthermore, per the recently-released data on global tablet shipment for 1Q18 by International Data Corporation (“IDC”), despite an 11.7% decline in overall unit shipment, Apple managed to increase the volume as well as its market share.

Will Microsoft Mend its Mistakes This Time?

Going by the leaked information gathered about the new device, so far, it is likely that Microsoft has tried to fix its past mistakes this time, although not every, but most of those.

Pricing was the main factor where Microsoft’s devices took a beating, by not only the iPad, but Chromebooks as well. Both its rivals have introduced tablets, with prices starting at $329, targeted at the education market. To counter this and make its presence felt in this space, Microsoft is targeting the $400 price point. In addition, it is expected that the company will roll out other low-priced accessories associated with the tablet like keyboard, stylus and mouse.

Also, a low-pricing point will support Amazon’s AMZN Fire Tablets — the starting price of which is as low as $40, and supports Alexa as well. It should be noted that in recent times, Amazon’s tablet has grabbed encouraging attention from budget conscious buyers.

Furthermore, per the reports, the company has addressed the OS problem completely this time. The new tablets will have Windows 10 Pro OS, which, along with Intel’s chips, will not only solve the problem of downloading apps, but will also help lure consumers as well, in our opinion. Notably, Windows is a widely used OS and therefore, consumers will find it more user friendly than other operating systems.

Will This Move Suffice?

The overall tablet market has been witnessing a secular declining trend for the last 13 quarters, thanks to availability of larger size smartphones. In such a scenario, prices of device and features are the keys to success in this space, and Apple has set an example.

Microsoft’s recent move will certainly help it boost the company’s tablet business revenues. Nevertheless, as Apple has always been preferred for its innovative ideas and ability to enhance features continuously, we believe Microsoft will be unable to completely dislodge the tech behemoth, at least any time soon.

Currently, both Microsoft and Apple have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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