Intel Corporation (INTC): Microsoft Corporation (MSFT)’s Surface 2 Is a Mistake

About two years ago, Microsoft Corporation (NASDAQ:MSFT) announced that it would be porting its next generation Windows 8 operating system to the ARM architecture. While this fueled shares of ARM, particularly as many had come to believe that this would be a significant blow to Intel Corporation (NASDAQ:INTC), it hasn’t really turned out that way. This ARM-compatible version of Windows, dubbed “Windows RT,” has been a dismal commercial failure. Despite this obvious failure, Microsoft Corporation (NASDAQ:MSFT) plans to launch a next generation “Surface 2” based on this platform. I believe that this, too, will fail and if Microsoft Corporation (NASDAQ:MSFT) isn’t careful, it will end up costing its shareholders valuable dollars again with another major writedown.

Microsoft Corporation (NASDAQ:MSFT)What is Windows RT and why is it destined to fail?
As I noted, Windows RT is a version of Windows designed to run on the ARM instruction set architecture. This means that every single application designed for Windows 7 and earlier will not run. There is also a host of compatibility issues with respect to peripherals that don’t have driver support on Windows RT. To make things worse for RT, Windows 8 quite literally offers everything that Windows RT does, but also includes so much more.

Now, at this point, nearly every one of Microsoft Corporation (NASDAQ:MSFT)’s customers has abandoned Windows RT in favor of using the full version of Windows 8 (running on an Intel Corporation (NASDAQ:INTC) chip). Now, while some folks may claim that Windows RT devices may offer better battery life or sell at more attractive price points, this is also patently false.

Inexpensive, full Windows 8 products based on Intel Corporation (NASDAQ:INTC)’s “Clover Trail” already offered equal-to-better battery life than competing ARM products at the time, and with Intel Corporation (NASDAQ:INTC)’s latest “Bay Trail” chip (that I was fortunate enough to get my hands on and test) offers significantly better performance-per-watt than the top ARM-based competitors across many workloads. As far as cost goes, the whispers suggest that Intel Corporation (NASDAQ:INTC)’s very highest end tablet chip will go for just $37 – with lower end parts going for less. Why would any OEM – or customer – settle for less if they can get the better product for the same price?

Quo vadis, Microsoft?
The shocking thing that Microsoft Corporation (NASDAQ:MSFT) is doing is releasing a next generation “Surface RT” called “Surface 2.” It’s still based on the less-functional Windows RT rather than full Windows 8. While the device is rumored to sport an NVIDIA Corporation (NASDAQ:NVDA) Tegra 4 (which is also a top-tier mobile system-on-chip), this will be enough to drive meaningful sales against a horde of full Windows 8 based systems based on Intel Corporation (NASDAQ:INTC)’s latest Atom chips at the same or lower price points.