Microsoft Corp MSFT recently unveiled the latest Surface Pro at an event in Shanghai, China. The new device comes with a host of new enhancements among which includes 50% more battery life (13.5 hours) than the Surface Pro 4 (nine hours) and 35% more than Apple’s AAPL iPad Pro.
The latest Surface Pro is much more portable than the Surface Pro 4 as it is quite a bit thinner and lighter. Microsoft has also added LTE support for the first time in the Surface line with the latest device.
Although shares did not show any significant movement following the news, we believe that the latest device will boost Microsoft’s presence in the portable/2-in-1 market against the likes of Apple, Samsung, Lenovo and Huawei going ahead.
We also note that Microsoft’s year-to-date return of 10.5% is much better than S&P 500’s gain of 7.2%. We expect that the rejuvenation of the Surface product line along with improving Office 365 subscriber base and strong growth prospect for Azure will help the stock maintain its upside in the rest of 2017.
Improved Features to Boost Competitive Position
The latest Surface Pro device is 2.5 times faster than the Surface Pro 3. Per Forbes, the new device is powered by Intel’s INTC seventh generation core processors – m3 or i5 or i7- depending on the model.
Microsoft Corporation Revenue (TTM)
Microsoft Corporation Revenue (TTM) | Microsoft Corporation Quote
According to Digital Trends, Microsoft redesigned Surface Pro’s copper heatsink-based cooling system to make it fanless, which makes the device much quieter as compared with Surface Pro 4.
Microsoft has also extended the range of the kickstand so the Surface Pro can lay flatter, which is described as the Studio Mode. The company also unveiled a new faster Surface pen that will be available in Microsoft Office product suite. Reportedly, Microsoft plans to sell the pen separately for $100.
The new Surface Pro features a 12.3” PixelSense touch display that supports the Surface Dial and the Surface Pen. Per Digital Trends, the Surface pen supports 4,096 levels of pressure sensitivity, and offers new tilt support that further refines the Windows 10 Ink experience.
Microsoft promises reduced latency for the new Surface Pen, which means that the time gap between touching the pen to the display and digital ink showing up on the screen will be significantly shorter as compared with earlier devices.
Starting at $799, the new Surface Pro (without keyboard and pen) will be available from Jun 25, in 25 markets.
In the recently concluded third-quarter 2017, Surface revenues decreased 26% (down 25% at constant currency) from the year-ago quarter due to intensified competition. (Read More: Microsoft Tops Q3 Earnings and Revenue Estimates)
We believe that the latest device, which is comparatively low-priced against Surface Book (starts at $1,499) and Surface Laptop (starts at $999) will attract more users that will eventually improve Microsoft’s top-line growth going forward.
However, intensifying competition from lower priced products developed by Samsung, Huawei and Lenovo will continue to impact market share, which is a major concern going forward.
Zacks Rank & Key Pick
Currently, Microsoft carries a Zacks Rank #3 (Hold). DST Systems DST sporting a Zacks Rank #1 (Strong Buy) is a stock worth watching in the same sector. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for DST Systems is currently pegged at 10%, which is slightly better than Microsoft’s 8.1%.
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