Microsoft's latest US$100 haircut

Microsoft's price cut a sign of retreat against the larger iOS and Android armies

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You didn't think Microsoft's  (NASDAQ: MSFT) poorly received Surface RT tablet would get all of the discounting fun, did you?

Three weeks after slashing the price of its soft-selling Surface RT, the world's largest software company is cutting the price on its relatively more popular Surface Pro. Buyers will get a US$100 price cut through the next few weeks, taking down the price to as low as US$799.

This isn't the kind of price cut that will make Apple  (NASDAQ: AAPL) nervous. Google's (NASDAQ: GOOG) Android as a tablet operating system typically toils in substantially lower price points. However, if Microsoft's goal is to sell more of its machines at a more consumer-friendly price, one can reason that Mr. Softy's success would have to come at the expense of Apple's iPad and some of the higher end Android devices.

Unfortunately for Microsoft, this may not make much of a difference.

Unlike Apple, Microsoft can't afford to go as cheap as it wants to with the Surface line of portable computing devices. It relies on third-party manufacturers to sell their own tablets powered by Windows 8 (and Windows RT in the case of the doomed Surface RT).

Unlike Google's Android, Microsoft's operating systems aren't freely available as open-source. It's not as if there are enterprising third parties out there willing to sell Microsoft-fueled gadgetry for less than cost so that they can profit from the resulting ecosystems.

There is speculation that this weekend's US$100 discount — following last month's larger US$150 price cut that pushed Surface RT prices as much as 30% lower to US$349 — is a move to clear inventory ahead of the second generation of Surface hardware. This is certainly possible, but let's not forget that a lack of sales has also triggered price cuts in the past.

We saw dramatic markdowns on PlayBooks and HP TouchPads in 2011, and it wasn't because new models were ready to hit the market. When the market has spoken — and it has, with Windows failing to gain traction in the critical tablet space — it's difficult to ignore. Apple may stage late promotions to clear the way for new models, but everybody else has typically discounted its products because they're not resonating with consumers at the higher price points.

It's hard to dismiss Microsoft's marketing muscle. It has certainly invested plenty in Surface ads since their introduction late last year. However, last week we learned that Microsoft generated just US$853 million in Surface revenue, translating into less than 2 million — and potentially just a little more than a million — tablets sold during the April-to-June period.

The price cut may not be a surrender, but it's definitely a sign of retreat against the larger iOS and Android armies.

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 Rick Munarriz, originally appeared on fool.com.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »