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Second Generation Surface Could Upgrade Microsoft

Microsoft will most likely release a second generation Surface RT this fall, but will consumers be interested?

Buying version two of a product is almost a universal rule for consumers. This is true for Microsoft Corporation (NASDAQ:MSFT) and its Surface RT. When Surface “2.0” is released, possibly next month, the success of the tablet could be better this time around.

[Read more about Microsoft’s Surface RT from Kapitall Wire]

What went wrong

Microsoft may have over-estimated the value of dividing tablet options, by offering a fully functional “Pro” and a basic “RT” model. Microsoft was so sure that RT would be a success that it built too many of them, only to have to write them down last quarter. Sales were further constrained, when the device was only available online and at Microsoft stores.

The high starting price did not help initial sales. Original equipment manufacturing (OEM) partners also felt they could try to charge for the RT at even higher prices. Lenovo’s Yoga RT and ATIV’s tablet sold for around US $750.

Hewlett-Packard Company (NYSE:HPQ) priced the Envy x2 for over US $800 initially. The net effect was low demand. A Windows 8 Envy x2 now sells for $650, so sales could eventually improve.

What could be different with Surface 2

OEM partners appear to have learned from their mispricing of the Surface. During the holiday season, Toshiba and Asus are planning to release fully functional Windows 8 tablets for as low as $349. The Asus T100 tablet will have 11 hours of battery life, run a full version of Windows 8, and will cost $349. The device is powered by a new Intel Corporation (NASDAQ:INTC) quad-core Bay Trail Atom processor.

The share prices of HP, Intel, and Microsoft could benefit from stronger sales, with Windows 8.1 and low hardware device costs acting as a catalyst for stronger PC demand:

​Click on the interactive charts below to see data over time. Sourced from Zacks Investment Research. 

Not to be left out, Dell Inc. (NASDAQ:DELL), which is going private, and Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) will both develop Windows-based tablets that should cost no more than $400.

Written by Chris Lau


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