PC Market – Surface to air.

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Further proof that the Surface Pro 3 is the winning design.

  • Dell, HPQ, Accenture and Avanade have all signed up to sell and support the Microsoft Surface Pro 3 and its descendants to their enterprise customers.
  • This is despite the fact that it competes with their in-house designs.
  • This is a strong endorsement of how important research and development has become in the PC market and underlines that Dell and HPQ continue to struggle with innovation (see here)
  • This initiative is also incredibly important because it has the scope to take the Surface Pro from being a niche product and make it something that changes the landscape of mobile computing.
  • I have believed for some time that the Surface Pro 3 is the first device that really renders the laptop form factor obsolete (see here).
  • The main reason for this is that Microsoft has spent over $100m on working out how to cram the all the power and functionality of a desktop PC into a tablet form factor.
  • The PC makers have come up with nothing more than laptops with a removable screen which have been rightly shunned by computer buyers.
  • I believe the Surface Pro 3 is a revolutionary product as:
    • First. It is the only tablet on the market that truly obviates the need for a laptop.
    • Second. The use cases that are available such as a truly portable desktop (see here) and pen-based input offer the user meaningful improvements to the user experience when not in the office.
    • Third. The hardware has been designed to allow the user to get more out of Office and productivity applications in general.
    • In this regard it soundly beats anything else that is available in the market including the MacBook Air.
  • The one area where this product fails badly is as a laptop but this is irrelevant as the whole point of this product is to offer something better.
  • Unfortunately, Microsoft has been selling laptops for so long that it has marketed the Surface Pro 3 with the very average and very expensive type cover making it look like a laptop
  • In my opinion, this is the worst use case for this product and in this configuration, a laptop is a better product in every regard except size and weight.
  • Because Microsoft has chosen to market it this way, the users simply do not understand what this product is and what it is capable of.
  • It is not until the user gets his hands on it that he can begin to understand what it is really capable of.
  • With HPQ, Dell, Accenture and Avanade selling and supporting this product to the enterprise, the scope for this realisation to spread much more quickly is vastly improved.
  • I have believed for some time that this is the key to recovery in the PC market in the medium term.
  • Once the market realises that the laptop is obsolete, the replacement cycle of laptops is likely to quickly decrease from 5-7 years to something much shorter.
  • This will cause a multi-year spike in PC shipments that is almost certain to be mistaken for a return to growth.
  • In reality this will be a big product cycle that waxes and wanes.
  • The capitulation by Dell and HPQ is also a strong signal that their products do not measure up and I am hoping that Microsoft is smart enough to allow all the PC makers to copy its design.
  • It is this, combined with price reductions through design and volumes that will allow this to reach the mass market and pull the PC market out of its slump.
  • Microsoft and Intel are the two most obvious beneficiaries from this but the rising tide of the PC market will float all boats.
  • It has been far slower than I had hoped but there are at last some signs that things may yet come right.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.