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Microsoft Betting on its New “Surface” Tablet

Thursday, August 23rd, 2012
By for Profit Confidential

Microsoft Betting on its New “Surface” TabletApple Inc. (NASDAQ/AAPL) is now the biggest company in the history of the world based on its market-cap of $629 billion as of Tuesday. Prior to this, Microsoft Corporation (NASDAQ/MSFT) held this status back in 1999 when its market cap was over $600 billion. Microsoft’s value in 1999 would be around $850 billion if you discount the inflation adjustment. Microsoft has since seen its value shaved by over 50%.

Based on my stock analysis, Apple is the darling stock of Wall Street. Its global market share for its “iPad” is around 70%, and the company is gaining inroads into China for its devices.

Samsung is the chief rival at this time with its “Galaxy” series of smartphones and tablets, according to my stock analysis. (Read “Heavyweight Bout—Apple vs. Samsung.”)

Former high-flying cell phone maker Nokia Corporation (NYSE/NOK) is struggling to stay afloat straddled with declining growth and losses, based on my stock analysis. Nokia has lost about 90% of its market value since Apple launched its “iPhone” five years ago. Nokia’s venture with Microsoft in building new smartphones built on Microsoft’s “Windows 8” mobile platform (to be unveiled on September 5) will face stiff competition from Apple and Samsung, according to my stock analysis.

There was speculation Microsoft would buy Nokia, but, based on my stock analysis, I doubt this will happen due to the sinking strength of the Nokia brand.

According to my stock analysis, Microsoft will need to grow its mobile business on its own, but this again will not be easy due to the strong brand awareness surrounding Apple.

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Even Microsoft’s $300 million investment for a 17% stake in a new division of troubled Barnes & Noble, Inc. (NYSE/BKS) is sinking fast. It was a gamble, but a bad one.

The future for Microsoft will lie with its new “Surface” tablet, but again, I doubt it will be an iPad killer. Microsoft realizes this and understands it needs to get its foot in the door of the tablet market; but it may be too late, unless the Surface tablet turns out to be truly amazing. For Microsoft, this will be its first venture into hardware sales, so it will be interesting to monitor. According to research firm IDC, Microsoft is planning an initial production run of over three million units. This amount is small, considering Apple sold about 17 million iPad units in its fiscal third quarter.

For Microsoft, the initial run will be a test for the market demand, and it will be interesting to see how consumers react to the Surface tablet after comparing it to the iPad and Galaxy.

In my stock analysis, the key will be the pricing, assuming everything else is equal. Research In Motion Limited (NASDAQ/RIMM) tried to sell a cheaper “PlayBook” tablet, but it failed. Of course, the PlayBook was not a great product and had no clear advantage over the iPad except price.

Circle October 26 on your calendar for the release of the Surface, which coincides with the release of Windows 8. I’m looking forward to the launch. I’m sure Apple is also.

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  • Michael Bruce Rosmer

    Windows 8 will win at the high end, probably hurting high end iPad sales as well as Macbook sales, but the pricing doesn't make it competitive with lower end iPads (except for the Surface RT with the basic iPad) or the Amazon and Nexus devices. Long term the overwhelming power of price will win out in driving people to Surface like devices, that is to say hybrid laptop tablet devices with detachable keyboards of some sort because it's more compelling to buy 1 device than 2 and existing tablets haven't been able to replace laptops. The added portability as well as functionality of Surface like devices will dominate. This doesn't mean Microsoft will dominate though. The original such devices were the Asus Android devices and Apple is likely to reply with this form factor of their own.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles

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