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Surface survives Microsoft cuts, but tablet strategy remains muddled

What part, if any, will Nokia have in tablets, analysts ask

July 17, 2014 03:07 PM ET

Computerworld - As Microsoft announced its largest layoffs in its 39-year history -- while saying it would press forward with its in-house Surface -- analysts contended that the firm still hasn't clearly stated its tablet strategy.

Earlier today, Microsoft said it would cut up to 18,000 jobs, or 14% of its work force, with the bulk of those layoffs coming from streamlining efforts after acquiring much of phone-maker Nokia.

The layoffs begin immediately, but as many as 5,000 will be left on tenterhooks for up to a year before knowing whether their jobs are safe.

Along with the layoffs, Microsoft also signaled an end to its experiment with Android, which powered the Nokia X series of smartphones. Nokia had kicked off the line prior to the deal's completion.

"We plan to shift select Nokia X product designs to become Lumia products running Windows," CEO Satya Nadella said in a message to employees.

Surface, the tablet-one-moment-notebook-the-next hardware that Microsoft debuted two years ago, will survive, the company made clear.

"With a set of changes already implemented earlier this year in these teams, this means there will be limited change for the Surface, Xbox hardware, PPI/meetings or next generation teams," wrote Stephen Elop, the head of Microsoft's device division, in a separate, much longer email to workers.

Nor, apparently, has Microsoft's Surface strategy changed.

"More broadly across the Devices team, we will continue our efforts to bring iconic tablets to market in ways that complement our OEM partners, power the next generation of meetings [and] devices, and thoughtfully expand Windows with new interaction models," Elop said.

While some on Wall Street have urged Microsoft to dump the Surface -- and the Xbox for that matter -- to focus on more profitable services and software, industry analysts contacted by Computerworld today weren't surprised that the tablet/notebook survived the cuts.

"I'm not surprised that Microsoft is keeping Surface," said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in an email today. "While it doesn't fit 100% with 'mobility and cloud,' it's close enough to keep it as it supports them driving their expanded definition of productivity by tying hardware, software and services."

Others agreed.

"No, I didn't think that they'd dump it," echoed Wes Miller of Directions on Microsoft, a Kirkland, Wash. research firm that focuses on the moves of nearby Microsoft. "Some people thought Microsoft would use this opportunity to ax the Surface, but it's a big long-term bet for them. And the Surface Pro 3 sure seems to be a lot more popular than the earlier models."

Microsoft started selling the third-generation Surface Pro 3 -- an Intel processor-powered device that runs Windows 8.1 -- last month, and will finish rolling out the line in two weeks. The Surface Pro 3 starts at $799, but costs $929 with a keyboard, a necessary add-on to fit the notebook replacement role that Microsoft markets.

Surface Pro 3 tablet
Two configurations of the Surface Pro 3 went on sale Friday, at prices of $999 and $1,299 sans cover keyboard. (Image: Microsoft.)

Despite Elop's statement that, "We will continue our efforts to bring iconic tablets to market," Microsoft's tablet strategy remains unclear, analysts said.

"I'm still confused about the role devices will play, especially in emerging markets," said Carolina Milanesi, chief of research and head of U.S. business for Kantar WorldPanel Comtech. "We still don't have much clarity on the role of Nokia on the tablet side."



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