On Thursday, May 7, 2014, Bloomberg published an article titled Microsoft Said to Use Qualcomm Chips in Smaller Surface. The article was written by Ian King and Dina Bass.
The article reports “Microsoft Corp. (MSFT) is planning to introduce a new, smaller version of its Surface that will use Qualcomm Inc. (QCOM) processors for the first time,” The publication of this article, rather soon after the publication of IDC’s latest survey of the worldwide tablet market makes sense.
As I wrote in a recent blog post, IDC survey results spelt problems for Microsoft, and for NVIDIA. The former saw its likely quarterly worldwide tablet sales numbers folded into the “other category”, while the Android O/S and Samsung were reported to have grown sales, year over year, by 32%. I surmised the repercussions of the IDC report on the latter, NVIDIA, could lead to the demise of their efforts to play a major role as a tablet chip vendor.
I should also note I hypothesized Microsoft might interpret the results to be a good reason to exit the tablet market, at least with the Surface product line.
If the Bloomberg article is credible (and we will all hear the answer to this question when Microsoft holds its scheduled meeting on May 20th), then it’s clear Microsoft is digging deeper into the worldwide competition for tablet consumers, opting for, perhaps, a less costly CPU for a smaller Surface, the long awaited “Surface Mini”. Of course, we can not tell how NVIDIA has been affected by Microsoft’s decision to drop the Tegra for the Qualcomm SnapDragon processor, but it is safe to say the result will be less than positive and, perhaps, important enough “bad news” for product management to re-evaluate the extent of NVIDIA’s commitment to the tablet market.
I would not be surprised to learn at Microsoft’s next quarterly earnings report about how the Surface Mini, with the Qualcomm processor will deliver more margin, and a lower cost of goods sold. Both of these production improvements may contribute to a point or two or more of additional margin on the hardware.
Disclaimer: I’m long Microsoft and have no present position in NVIDIA, Samsung, Qualcomm or Google. I am neither affiliated with IDC, nor with Bloomberg LLP.
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