October seems to be living up to the US's Halloween slogan, "Trick or Treat!" This month, consumers are being quite nicely treated to the unveiling and releases of many tablet PCs, which, as we know, are among the hottest selling devices after smartphones.
Next week there will be two crescendo announcements and device presentations: the Microsoft (MS) Surface Tablet and the Apple iPad (Mini?!). While Apple has been the market leader in tablets, in no small part because of the market changing iPad device, MS has not ventured into devices for this market sector before, having focused its business and personal computing (versus gaming) on the software side and leaving the hardware side to collaborating OEMs. Next week there will be a game changing event when not only is MS Windows 8 released, but also the new MS Surface Tablet, priced competitively at US $499.
Given the context of the ongoing, uncertain, global macro-economic times, price point is a critical strategic point. As Wall Street Journal points out, not only is the US $499 and $599 price directly targeted at the anticipated price range for Apple's Oct. 23rd announcement of what we all expect to be the iPad Mini, but importantly it is direct competition with MS's OEM hardware channel partners. MS is targeting the business user and enterprise market with the device, alongside of the Windows 8 release.
Big questions remain
But there are questions around what will happen next. One of the biggest questions is whether or not Windows 8 will actually spur the (once) traditional (hardware) refresh cycle that coincided with software upgrades. Unfortunately, MS's previous software release, Windows 7, did not spur the hardware refresh the industry anticipated. Granted, the macro-economic backdrop was very much a negative variable affecting this, nonetheless, the question of MS's ability to drive sales is in the air (for one example, see this most recent Bloomberg article).
However, some important understandings of MS's hardware venture is that not only does the combination of Surface Tablet plus Windows 8 provide a needed diversification for MS in terms of hardware, but it also provides what MS intends as a seamless hardware-software business focused environment because the Surface can run full versions of MS Office suite. The need for this diversification was underscored yesterday when MS "reported after US markets that fiscal first-quarter profit fell as computer sales declined," as discussed in Financial Times.
The reasons analysts give for this profit slide is the drop in PC sales in the wake of rising tablet PC sales. This is the trend that many major hardware and software firms with core focus in PCs are experiencing, for example, Intel and AMD also reported similar profit declines this week. The market extent of the drop in PC sales is a new and significant event, as Bloomberg summarized reports from both Gartner and IHS iSuppli:
During the quarter, global PC shipments slumped 8.3 percent from a year earlier to 87.5 million units, market-research firm Gartner Inc. said last week. The total PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS ISuppli. That’s the first annual decline since 2001, the market researcher said last week.
Apple though is no novice competitor and the brand carries with it a significant and loyal following. With businesses adopting the BYOD (Bring Your Own Device) the top-down adoption of hardware and software is no longer the mainstay in the enterprise sector.
Regardless, the fact that there is a compelling competitive situation is positive for the semiconductor industry writ large. How this will play out will be ours for the watching over the next quarter.