MENU

Has the Microsoft Surface really been a failure?

Microsoft (NASDAQ: MSFT) has been hammered over the past two weeks because sales of Windows 8 and Microsoft Surface were lower than expected. Yes, the Microsoft Surface RT was a disappointment, and with a US$900 million write-down the device took a big dent out of earnings last quarter, but was the device really a disappointment?

Breaking into the tablet business

One of the biggest goals of the Microsoft Surface was to demonstrate Windows 8’s usability on tablets. Up until Windows 8 was released, it was basically a two-man game between Apple (NASDAQ: AAPL)  iOS and Google’s  (NASDAQ: GOOG) Android. In the second quarter of last year, the two companies accounted for 98.6% of tablet market share.

Over the past year, Microsoft has demonstrated the ability to run a mobile operating system, and the Surface helped encourage other manufacturers to use the operating system in their products. According to Strategy Analytics, that has led to a market share increase from 0.5% of the tablet market a year ago to 4.5% in the second quarter of this year. Microsoft isn’t a huge player in tablets yet, but it’s making inroads that once seemed impossible.

The sacrificial lamb

Microsoft isn’t known as a hardware company, and its only real success making physical goods is the Xbox. So, putting high expectations on the Surface, especially the Surface RT, was a bit unfair by investors. The company is learning how to make devices and was really encouraging others to use Windows 8, so the Surface RT can be looked at as a sacrificial device in a lot of ways.

What’s more important is that Microsoft continues to gain share against Apple and Google. As Hewlett-Packard, Dell, Asus, and others make more and more compelling devices with Windows 8, the company will take more share and become a bigger player in the tablet space.

Microsoft doesn’t need to create a dominant tablet device itself; it just needs to demonstrate that tablets running Windows are possible. Surface did that, even if it wasn’t a financial success for Microsoft. Long-term, I think investors should be judging Microsoft’s ability to gain mobile operating system market share, not just whether a single device is a success. That’s always been Microsoft’s bread and butter.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

A version of this article, written by Travis Hoium, originally appeared on fool.com.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.