Post-PC pain

Microsoft Surface
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Microsoft Stock (and Surface Sales) Are Dead Until at Least 2014

Microsoft (MSFT) continues to feel the pain relating to its Surface tablet business, most recently with a bunch of unpleasant headlines about big price cuts.

And the worst part? Even if the Microsoft Surface is cheaper, it will have trouble competing in the near-term.

Even if a Microsoft Surface 2 is on the way.

That’s because too much bad press and a holiday push from competitors Apple (AAPL) and Google (GOOG) are going to make the Microsoft Surface an also-ran until 2014 at the earliest.

For the record, I don’t think the Surface is a complete flop. A look at the specs shows that the Surface RT has a lot of powerful features that might connect with consumers, including Microsoft Office software and printer capability as well as a big display and fast processor for about half the price of an iPad.

Long-term, I expect Microsoft to make big inroads into the enterprise tablet space, particularly after BlackBerry (BBRY) has basically given up on its PlayBook. MSFT stock might never be top dog in the mobile space, but its Windows Phone partnership with Nokia (NOK) is bearing fruit as the Lumia line slowly gains steam, and the Surface could make it a viable option for businesses.

But sometimes, it’s not just about the specs … it’s about the flash. And Microsoft stock doesn’t have any sparkle right now. Consider:

  • MSFT recorded a $900 million writedown because it overestimated demand for Surface — essentially confirming the company didn’t understand what consumers want and underestimated Apple and its iPad dominance.
  • Microsoft stock flopped about 10% in one session after the ugly numbers in late July.
  • David Einhorn, founder of Greenlight Capital, bailed on his Microsoft investment and called Windows 8 a “flop.”

Taken in this context, recent price cuts for Microsoft Surface tablets are being seen by many as a race to the bottom. They actually might just signal that MSFT is preparing for a new line of devices with Microsoft Surface 2 on the way in the near future … but the narrative is written.

Meanwhile, Apple stock is bouncing back, and there’s buzz about a new line of iPads and colorful iPad Minis set to debut in the coming months — plus, we’ve seen the recent big-time launch of Nexus 7 from Google that is getting strong reviews and could give the iPad Mini and Amazon (AMZN) Kindle a run for their money in the 7-inch tablet department over the holidays.

This holiday season is likely to be a blowout for the iPad, the Nexus and the Kindle. But consumers have no reason to be excited about MSFT tablets — whether they be the Pro, the RT or a rumored Microsoft Surface 2.

And obviously, businesses certainly don’t spend big on IT over the holidays.

That leaves little upside to Microsoft’s tablet business in the next several months. And considering the struggles elsewhere in the business, that could mean that MSFT stock remains stuck until 2014 at the earliest.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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Comments
  • Matt

    Good points but you are forgetting that Microsoft don’t just make tablets, and the XBOX ONE is released this holiday season and will be huge!

    • Jeff Reeves

      Fair point… but color me skeptical, both on the demand front and the execution of MSFT after gross oversupply issues with Surface. Besides, even pulling off $1 billion in hardware sales (2 million at $500 per customer) would be a nice one-time pop but can’t change the broader narrative. Consoles are a declining biz just like PCs, even if they will never fully disappear.

  • saty

    Fair article. MSFT failed to showcase its strengths with Surface but they may come back strong later. It happened with Xbox, Windows, and Office. Not so much with Bing. It would be interesting to see their strategy.

  • Will

    Bing isn’t that big of a failure… It is one of the top fifteen sites visited daily.

  • CJaying

    I switched from Google to Bing some time ago and I’ve never been happier. People need to get off the “beat up on Microsoft” bandwagon and try something different. Get so sick of the negativity about MS it makes me want to go buy a Surface Pro to go with my Surface RT. At least my Surface is more than an Apple toy. So many stuck in a rut.

    • Michael Hill

      my friends with macs and androids drop their jaws when they see what I do with windows in my house. If they want to talk about blunders, lets go back to the original one. apple selling excel to Microsoft in the first place. Remember apple going bankrupt. Who bailed them out? Microsoft. How did apple repay it? with all of those ‘im a pc’ commercials. Let them overpay for their trinkets lol

  • Michael Hill

    First of all, you are jumping the gun on everything you are saying. The truth of the matter is that Microsoft is the only company out there that is trying to place real power in a tablet. All the other devices are trinkets. Let’s all face facts. I have an android and an ipad 3. I will never buy another. These 2 companies have managed to go back in PC time 20 years, and give us games and apps from that era (the only difference is they now connect to the internet). The quality is terrible in my opinion. I have yet to see one of these devices that I wouldn’t call a trinket. It is this generations pacman. Try running the real photoshop in any tablet except Microsoft. To me, they are the ones being innovative and taking the time to do things right. Microsoft has a bigger budget for research and development than google or apple has – and it’s not close. All 3 companies will be here for our lifetimes most likely. They have enough cash reserves to be around as long as they wish.
    Also check out sales of surface in places like japan. They are leading the pack there.
    I challenge anyone to use bing for a month and see if you ever want to go back to google search.
    My name is mike. and I am a PC and windows 8.1 rocks the heavens.

  • CJaying

    Mike, couldn’t agree more about Windows. I’ve been using Windows 8 since October and I’ve pretty much stopped using Win 7 on my PC. Can’t believe that once you give it a try, you wouldn’t love it. Fun to use. Get with it people! Looking forward to Windows 81; however, I say screw a start button. Can’t believe people really want that back.

  • Nigel

    Microsoft is a great company. The moment I switched to windows 8 I just fell in love with it. the user interface is so easy and the experience is amazing. my windows phone from nokia is also amazing. I will never ever be using a Google or Apple product and that’s coming from some who has had every iphone so far. what a stupid toy