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Fitch: Microsoft Surface Tablet Seen As Defense of PC Business
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Fitch Ratings says that it believes Microsoft's announcement that it plans to offer its own tablet PC is a defense of its core Windows PC business in the face of growing consumer and enterprise adoption of Apple's iPad and Android-based tablets.
Fitch noted that it would not expect the level of success of Microsoft's own hardware platform to have any impact on the credit rating. However, the ratings could clearly be negatively affected if greater adoption of non-Windows platforms materially erodes demand or leads to price compression for Windows and Microsoft Office over the next few years,
While details of the new tablet product are scarce, as price and certain performance capabilities are unclear, they said that they would expect this product to offer similar functionality to a Windows Ultrabook computer with touch capabilities. In this sense, the market for this type of tablet would include users that need the capability to run Microsoft Office or other applications unavailable on competing OS tablets. The availability of apps will be critical to its success, particularly in the consumer market. Fitch expects enhanced security features will also differentiate Microsoft's tablet from consumer-oriented tablets currently in the marketplace, thereby increasing the product's appeal to CIOs and enterprise users.
Microsoft's tablet is expected to be available concurrently with the unveiling of its new operating system, Windows 8, which is expected in the third quarter of 2012.
Microsoft's decision to offer its own hardware platform could clearly rankle its OEM partners, such as Dell and HP, but likely reflects its level of nervousness over the initial cannibalization of PC demand by uptake of the iPad and Android tablets. Microsoft's decision to limit distribution to its own stores and some undisclosed Web sites should placate its OEM partners. Fitch does not expect Microsoft to remain on the hardware side of tablets long term, assuming the OEMs can develop a successful product. While OEMs will be unlikely to move away from Windows, at least in the near term, Fitch believes the addition of the Surface tablet could potentially spur greater product innovation by OEMs, a core competency that has been significantly underwhelming in recent years relative to new product introductions from Apple. The situation is somewhat similar to the Ultrabook platform introduced by Intel at Computex in 2011 in terms of stimulating PC demand to offset strong growth in ARM-based tablets. A key difference is Intel worked with the OEMs to develop the Ultrabook product.
Microsoft has built a leading consumer platform with its Xbox gaming system, which includes its Xbox Live entertainment service. The Xbox also integrates Microsoft's novel motion-sensing Kinect user interface. Microsoft's ability to successfully extend the Xbox Live ecosystem and the Kinect interface to next-generation computing platforms, including tablets and smartphones, will be key to its success in maintaining Windows dominance among operating systems.
Tags: [microsoft] [fitch ratings] [intel]
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