April 11, 2013, 3:11 PM — Microsoft will launch a new line of Surface tablets later this year, including one or more smaller 7-in. devices, according to the Wall Street Journal.
The report was published just hours after research firms IDC and Gartner spelled out a "brutal" first quarter for PC shipments. IDC pegged the three-month period at a decline, year-over-year, of 14%, the biggest contraction since it began tracking PCs nearly two decades ago.
According to the Wall Street Journal (paid account required), which cited the usual "people familiar with the company's plans," Microsoft was reacting to the sudden shift toward smaller tablets, led by devices such as Google's $199 Nexus 7 and Apple's $329 iPad Mini. The former relies on a 7-in. screen, while the latter uses a 7.9-in. display.
Some Microsoft watchers have said it's more likely that the company will add 8-in. tablets to its Surface line, a size closer to the iPad Mini than to the Nexus 7 and not 7-in. models as the Wall Street Journal reported.
If accurate, the newspaper's report would confirm speculation last month that Microsoft was preparing to enter the energetic sub-8-in. tablet market and push its hardware partners to do the same.
Although Microsoft launched Windows 8 and Windows RT last October in an effort to claim some tablet share, sales have been lackluster, according to industry estimates. By IDC's reckoning, Microsoft and its OEM (original equipment manufacturer) partners sold 3.3 million Windows 8 and Windows RT tablets in 2012's fourth quarter, and will sell approximately 9 million this year, or about 10% of either Apple or Android tablet makers.
So far, all Windows 8- and Windows RT-powered tablets have featured screens 10-in. or larger, with Microsoft's own Surface devices offering a 10.6-in. display. But small tablets would bolster the company's portfolio, and more importantly, get Microsoft into a ballooning market.
About 52% of all tablets shipped in 2013 will sport screens 8-in. or smaller, said IDC earlier this year, a 19-point increase over 2012. Smaller tablets' share will continue at approximately 53% for the next four years.
Microsoft, analysts believe, can't afford to ignore more than half the market.
But will those tablets pack an ARM processor, as does the Surface RT, which runs Windows RT, or an Intel-branded CPU, such as the Atom, which is able to run Windows 8, the operating system inside the Surface Pro?
The Wall Street Journal's sources did not say. Nor did they pinpoint a price band for the new -- and presumably less expensive -- Microsoft tablets.
"I think that they'd go both ways," said Ezra Gottheil, an analyst with Technology Business Research, of the ARM-Windows RT and/or Intel-Windows 8 decision. He based his reasoning on a bet that Microsoft would continue to promote Surface, even in a more petite form factor, as able to not only consume digital content, but also create content using tools like Office or any of the thousands of legacy applications designed for Windows 7 that also run on Windows 8.
"Drop a Windows 8 Pro tablet, even a smaller one, into a dock and you have a full-sized PC," Gottheil said.
Microsoft has marketed the Surface Pro, which starts at $899, as a content creation device and a notebook replacement, when equipped with the company's optional keyboard-slash-covers.
No, not for 7-in. tablets, countered Sameer Singh of Tech-Thoughts.
"I think it will be ARM. While Atom provides legacy support, I don't think the additional cost fits with the rationale of moving to 7-inch tablets [and their] lower price points," said Singh in an email reply to questions.
And Windows 8's support for traditional Windows desktop software is a questionable selling point on a smaller tablet, Singh added. "Windows 8 makes very little sense on 7-in. tablets as legacy applications proved difficult enough to use on a 10-in. touchscreen," he said.
Nor would Office be much help on compact screens, Singh said, although both he and Gottheil acknowledged a minor segment of the purchasing pool might be interested in the suite. "At that point, Microsoft will be stuck marketing 7-in. Windows RT tablets to enterprise customers, and that's a tough sell," Singh said. "Office doesn't seem to be a huge draw in the consumer segment."
Microsoft is so bullish on Office's partnership with its current Surface tablets that it has reportedly scheduled the suite for release on Apple's iOS and Google's Android for October 2014, 18 months from now and much later than many expected.
Bob O'Donnell, an IDC vice president, has also downplayed the idea of Office on smaller screens. In an interview Wednesday, he said his view had not changed since January, when he pointed out the rapid expansion of 7-in. tablet sales, arguing that they were unsuitable for Office, and said as a result Microsoft had a narrowing timetable to promote the suite on tablets.
In October 2013, however, Microsoft will allegedly ship updates to Office RT, the version bundled with Windows RT devices, to make them work better in an all-touch environment.
Last month, when the Windows 8/RT screen resolution rule was relaxed, experts suggested that Microsoft might price a 7-in. Surface tablet anywhere between $199 and $399, the wide range indicative of their uncertainty about the company's strategy and aggressiveness.
Today, Singh picked $299 as the likeliest price for a Windows RT-based 7-in. Surface, the higher-than-Android-price reflecting the embedded cost of the operating system's license.
"No matter how far Microsoft drops the licensing cost for Windows RT, the overall cost structure, and hence prices (~$299), will still remain considerably higher than those for Android tablets (probably moving towards ~$150 this year, excluding white-label products)," he said.
There has been talk that Microsoft has cut the prices it charges OEMs for some licenses, including Windows 8 and Office 2013, but Windows RT has not been mentioned in those reports.
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is firstname.lastname@example.org.
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