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 and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at 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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