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The Lenovo Yoga Tablet

Robert J. Elisberg   |   October 31, 2013   12:06 PM ET

On Tuesday night, I went to an event in Los Angeles for Lenovo. I've been writing recently about the growing spate of interesting, low-cost Windows tablets that are upcoming, of which Lenovo has one, but this was to introduce a different of their new products, the Yoga tablet which runs Android 4.2.2.

I haven't had time to really test the unit fully, but it has some intriguing, indeed unique things about it, which is rare for a tablet these days. Most notably, it has an 18-hour battery life, which is remarkable. (To be clear, that number is under ideal conditions.) And with a microUSB plug, this long-life battery can be used to charge other devices, notably your cell phone, so you don't necessarily have to carry an extra battery pack. Also, unlike other tablets, this one isn't completely flat -- it has a sort of rounded "handle" on the side. This makes for a better, more comfortable grasp, and it also can fold down to a tilt stand position for typing, or as a full stand for watching movies.

(I'm not 100 percent sold on it. It does make it easier to hold the tablet, though it adds some weight -- in fairness, I believe that's where the batteries are installed that allow the long-life. But it also means its back won't lay down perfectly flat. It's not problematic at all, though, and some people may love the benefits of it. Most especially if it's what allows the 18 hours of battery life.)

The specs are good, not great. It has 1 GB RAM and 16 GB capacity. It doesn't have the highest resolution, nor is it the most powerful, but the display is very crisp, and the unit is extremely responsive. It comes in both 8" and 10" models.


I like that the two speakers are on the front -- and the volume control "up" button cleverly will be up even when you flip the tablet end for end. And the sound was surprisingly respectable - a bit thin, of course, but quite crisp. Although the capacity isn't great, it has a microSD slot to expand storage. And there's a slot for a SIM card. It uses a lower-end MTK processor, but as I said above, the unit seems responsive, and most importantly this MTK processor allows the price to be impressively low. The 8" model is just $249, and the 10" is only $299.

As for that processor, it ran YouTube clips smoothly, though there was occasionally a bit of issue with caching. I also checked out the "Watch ESPN" app, which lets you watch anything that's on any of the ESPN channels live. After a few seconds getting the initially-pixilated image clean, it ran quite well.

What I'm also intrigued by is an accessory that is available for the 10" tablet: a bluetooth keyboard which doubles as a screen cover. It retails for $70. I haven't had a chance to test this though, so I don't have any reaction to how well it works.

For those who keep tabs on such things (no pun intended), the event was hosted by Ashton Kutcher, who in an amusing video explained that he wasn't just a spokesman, but was hired by Lenovo as a project engineer, complete with name tag and cubicle.


All in all, the Lenovo Yoga is a very interesting entry into the Android tablet world, that offers several features that standout as uncommon. With Windows tablets on their way, it's an interesting time for the market.

Correction: In an earlier version of this post, the author incorrectly stated that the Lenovo Yoga tablet has 1 MB RAM; the tablet has 1GB RAM. The error has since been corrected.


To read more from Robert J. Elisberg about this or many other matters both large and tidbit small, see Elisberg Industries.

A Tablet For The Holidays? Maybe

Shelly Palmer   |   October 28, 2013   10:42 AM ET

If you were hoping to purchase a new tablet this holiday season, you're in luck. Between Microsoft's recent launch of the Surface 2, Nokia unveiling what seemed like 100 new devices at Nokia World and then Apple's unveiling of the iPad Air and iPad mini with Retina display - there are several to choose from. Which should you buy?

Iteration From Apple

Apple's in a bit of a pickle right now, and it knows it. It used to enjoy close to 100 percent market share because Apple invented the category. Now, it has about 49 percent market share and the numbers are trending in the wrong direction.

The company knew it had to make a big splash to regain some momentum. It showed off two new devices: the iPad Air, which is thinner, happier, better, yummy yummy; and a new Retina display version of the iPad mini, which at 7 inches is a great form factor. They're good. But it's not really true innovation. (That's not to say Apple can't do true innovation anymore; the newly re-designed Mac Pro that was shown off just before the new iPads is stunning.)

But when Apple unveiled its new iPads, CEO Tim Cook said, "Our competitors don't really know what they're doing." He said that his competitors are making tablets, they're making notebooks, they're making Chromebooks. Cook said that Apple's clear focus and singular vision is better. I disagree. Truthfully, Apple is just making iPads. They're making them great. If you like an iPad, nothing else will do. But, if you want a combination of a PC and a tablet, Microsoft is really working hard.

So... What's Going on Between Nokia and Microsoft?

It makes no sense for Nokia to unveil a brand new tablet, powered by Windows RT, on the same day that Microsoft launched its new Surface 2 tablets. Nokia's about to be bought by Microsoft, yet for some reason still thought it was a good idea to unveil what's basically the same unit as the new Surface 2 (the new version of the tablet known as the Surface RT). Both of these devices are crippled because they're both RT units. The Lumia 2520 and the Microsoft Surface 2 are literally both the same unit from a technology standpoint.

The standout tablet from either company is the Surface Pro 2, which is a whole other thing because it's expensive. It's basically a laptop that's sold without the keyboard... which you will purchase separately making it even more expensive. The Surface Pro 2 with a keyboard is far more expensive than an iPad Air and more than double the price of the new iPad mini. Nothing to compare here. The Surface Pro 2 competes with Windows Ultrabooks, not Apple iPads.

Remember: It's Not Microsoft vs. Apple

The Surface Pro 2 is getting great reviews ... but there's no one lining up to buy them. The battle is not between Microsoft and Apple. The battle is between Google and Apple and, specifically, between Android devices and iOS devices. Microsoft hopes, wishes and prays to be included in the conversation, but it's not there. Microsoft is trying to create a market for tablet computing as opposed to tapping the market of tablet users - it may sound like a semantic argument, I assure you it is not.

Look at Microsoft's operating systems. You have Windows 8 on a PC vs. Windows 8 on a tablet vs. Windows RT ... these are operating systems that people will like when they learn to use them, but Microsoft has done nothing to teach them to use them. When you walk up to Windows 8, you go, "I want it to be Windows 7!" Microsoft has missed all kinds of consumer opportunities. What they have to do is figure out how they're going to beat Apple and Google at the game Apple and Google are actually playing - a game Microsoft clearly does not understand.

Who Won Triple Tablet Tuesday?

Apple. It said, "We're going to be here for Christmas, and you're going to be happy!"

Who lost? Microsoft. It's about to go and spend a big chunk of money for Nokia, and Nokia's sitting there going, "We don't know what we're doing..." and Microsoft is saying the same thing. Microsoft's got some work to do. There's a chance for Microsoft to make great strides in the tablet market, but looking at these holiday offerings, it's hard to be optimistic.

By JOSHUA FREED   |   September 30, 2013    5:35 PM ET

MINNEAPOLIS (AP) — Delta Air Lines plans to buy 11,000 Microsoft Surface 2 tablets for its pilots to replace the heavy bundles of books and maps they haul around now.

Other airlines, including American and United, have been buying Apple's iPad for that purpose.

Delta says the Surface tablets will save it $13 million per year in fuel and other costs. Right now, each pilot carries a 38-pound flight bag with manuals and maps.

Delta plans to test the tablets on its Boeing 757s and 767s, which are flown by the same group of pilots. The airline is hoping for Federal Aviation Administration approval next year to use the tablets throughout a flight, and it hopes to be using the devices on all of its other planes by the end of next year.

One reason Delta picked a Microsoft device was that it's easier to give pilots separate sections for company and personal use, said Steve Dickson, Delta's senior vice president for flight operations.

Pilots will be able to install personal software and keep their own items such as photos on the personal section of the devices, while another portion will be dedicated to Delta's software, Dickson said.

"We trust them to manage that side of the device," Dickson said.

Another reason for picking the Surface tablet is that Delta's training software also runs on the same Windows operating system as the tablets, reducing the need to redo that software for another device, Dickson said.

Delta has already done a test program where pilots could bring their own devices, including iPads.

In August, Delta said its flight attendants will get Windows phones to process in-flight sales of food, better seats, and other items.

Microsoft announced last week that it is updating its tablet line, which includes the Surface 2s that Delta is buying. The Surface 2 is the cheaper of the two versions sold by Microsoft, retailing for $449 each. Dickson declined to say how much Delta is paying.

By ANICK JESDANUN   |   September 23, 2013    1:19 PM ET

NEW YORK (AP) — Microsoft refreshed its Surface tablet computers Monday, giving them longer battery life and better comfort on laps as the software giant continues its transformation into a devices and services company.

The company said it tried to address many shortcomings of the first-generation Surface models, sales of which have been slow. Microsoft needs to boost its tablet business to make up for sales declines in traditional desktop and laptop computers. IDC is forecasting a nearly 10 percent decline in PC shipments this year. The research firm also said tablets will outsell traditional PCs in the last three months of the year.

The new tablet models come with a better built-in kickstand so they can rest more firmly on users' laps while they sit on the couch. Microsoft is also making a docking station and a wireless mouse for business customers who need the mobility of tablets but also desire the traditional ways of using computers while in the office.

"We've definitely gotten a year smarter," Brian Hall, general manager of sales and marketing for Surface, said in an interview.

The redesigned Surface tablets come at a time of transition for Microsoft. Earlier this month, Microsoft struck a deal to acquire Nokia's phone and services business for $7.2 billion. The company is also searching for a new CEO to replace Steven A. Ballmer, who announced last month that he plans to retire within the next year.

The Surface Pro 2 is targeted at professionals who want the full power of a laptop in a tablet-style device. With a starting price of $899, the Pro 2 uses a full version of the upcoming Windows 8.1, meaning it can run any program written for Windows desktops and laptops.

The Pro 2 promises 75 percent more battery life than the debut Pro model, which came out in February. Microsoft, which did not specify the number of hours of expected use, said the improvement comes partly from the use of Intel's Haswell chip, which uses less energy. There's also an optional Power Cover accessory that extends battery life even further.

A cheaper model, Surface 2, offers a 25 percent improvement in battery life, which means it can get up to 10 hours of use. It also has a better screen compared with last October's Surface RT. It uses Windows RT 8.1, meaning it can run only apps specifically designed for it. Microsoft said it now has 100,000 apps, or 10 times what was available last year. Like other RT tablets, Microsoft is including a version of its Office software for free with the Surface 2. But now, the package will have the Outlook email and calendar program, not just Word, Excel and PowerPoint.

Microsoft is selling the Surface 2 starting at $449 and will continue to offer last year's Surface RT for $349.

The Surface 2 and the Surface Pro 2 will come with 200 gigabytes of free online storage through SkyDrive for two years, as well as free calls and Wi-Fi hotspots through Skype for a year. The new tablets will go on sale Oct. 22, a few days after Microsoft releases its 8.1 update to its Windows 8 operating system on Oct. 17. The screen on both new models remains at 10.6 inches, measured diagonally.

Keyboard covers will cost extra: $120 for a Touch Cover 2, which has working, printed keyboard on the inside surface but whose keys don't move when pushed, and $130 for Type Cover 2, which have keys that move. A new Power Cover with a built-in spare battery will cost about $200 when it comes out early next year.

A $200 docking station also will come out early next year and will work only with Pro models, including the older one already out. Hall said Microsoft chose not to make the Pro 2 smaller so that accessories would be compatible.

In an interview, Hall said the company will fine-tune its marketing strategy by showing specific things that the Surface can do in ads. Last year's ads, he said, tried to create an energetic feeling, but failed to show consumers what the tablets did.

Hall also said Microsoft won't try to compete directly with Apple's popular iPad. Microsoft is positioning the Surface as ideal for tasks people normally tackle on laptops, such as creating documents and editing movies. That's also the reason the Redmond, Wash., company opted not to make models with smaller screens, Hall said, as those tend to be used more for entertainment and content consumption.

"We have to get people to think of it as a little different (from) an iPad," he said. "iPads are great, but these are a different device. ... We're building a product for a different set of people."

  |   September 23, 2013   11:05 AM ET

NEW YORK — Microsoft introduced new Surface tablets, including a professional model that allows people to use it more like a laptop or a desktop computer.

The Redmond, Wash. company is trying to boost its tablet business as sales of traditional desktop and laptop computers decline.

The Surface Pro 2, unveiled at an event in New York, is targeted at professionals who want the full power of a laptop in a tablet-style device. The kickstand built into the device is redesigned to make it easier to use on laps. In the past, it worked best on a flat surface such as a table.

Microsoft says the Pro 2 also offers a 75 percent improvement in battery life over the previous model. There's also a new cover accessory that extends battery life even further. An optional docking station allows the Pro 2 to be used like a laptop.

A cheaper model, Surface 2, offers a better screen and other improvements over last year's Surface RT.

The Surface 2 starts at $449, and the Surface Pro 2 at $899. It is available starting on Oct. 22 in the U.S. and other markets.

Microsoft plans to release an update to its Windows 8 operating system on Oct. 17. Among other things, Windows 8.1 will be usable on smaller touch screens, which have become popular because they are cheaper and easier to carry. The previous version of Windows 8 was limited to tablets with 10-inch to 12-inch screens.

The screen on both new Surface models remains at 10.6 inches, measured diagonally. Microsoft didn't announce smaller Surface models.

The redesigned Surface tablets come at a time of transition for Microsoft. At a time when personal computer sales are falling, the software giant is trying to become a more diversified software and mobile devices company. Earlier this month, Microsoft struck a deal to acquire Nokia's handset and services business for $7.2 billion. The company is also searching for a new CEO to replace Steven A. Ballmer, who announced last month that he plans to retire within the next year.

Microsoft has manufactured devices before, such as its Xbox gaming console. In selling the Surface, the company became a competitor to its many manufacturing partners, which rely on its Windows operating system to power their machines.

Microsoft began selling Surface tablets last October, but sales have been slow. The company shipped about a million tablets in the first three months of 2013, according to research firm IDC. That includes about 260,000 of the slimmed-down RT version of Surface and 750,000 of the Pro version, which is compatible with older Windows programs. The shipments gave Microsoft a meager 2 percent share of the tablet market in the first quarter. By the second quarter, Microsoft tablets dropped out of IDC's Top 5.

Microsoft absorbed a $900 million charge in the April-June period to account for its expected losses from the Surface RT after it slashed prices to stimulate demand. The $150 cut brought the price of the Surface RT with 32 gigabytes of memory to $349. The Surface has a 10.1-inch screen measured diagonally. The RT version is 1.5 pounds. The Pro version is 2 pounds and starts at $799, $100 less than it was at launch.

Bill Rigby   |   August 26, 2013    9:04 AM ET

(Reuters) - The next CEO of Microsoft Corp has one big decision to make: press on with retiring chief executive Steve Ballmer's ambitious plan to transform the software giant into a broad-based devices and services company, or jettison that idea and rally resources around its proven strength in business software.

Ballmer's grand design - unveiled just six weeks before Friday's surprise announcement that he would retire within a year - calls for 'One Microsoft' to pull together and forge a future based on hardware and cloud-based services.

But poor sales of the new Surface tablet, on top of Microsoft's years-long failure to make money out of online search or smartphones, have cast doubt on that approach.

For years, investors have called on Microsoft to redirect cash spent on money-losing or peripheral projects to shareholders, while limiting its focus to the vastly profitable Windows, Office and server franchises.

Activist investor ValueAct Capital Management LP, whose recent lobbying of the company may have played a role in Ballmer's decision to retire earlier than he planned, is thought to favor such an approach.

In the last two years alone, Microsoft has lost almost $3 billion on its Bing search engine and other Internet projects, not counting a $6 billion write-off for its failed purchase of online advertising agency aQuantive. It took a $900 million charge for its poor-selling Surface tablet last quarter.

For now at least, Microsoft seems intent on pursuing Ballmer's vision. John Thompson, Microsoft's lead independent director who is also heading the committee to appoint a new CEO, said on Friday the board is "committed" to Ballmer's transformation plan.

The eventual choice of that committee - which has given itself a year to do its work - should provide a clue to how committed the board really is, and how open to outside advice.

"Taking an internal candidate like Satya Nadella - the guy nurturing servers - or some of the other people on the Windows team, that makes sense to keep a steady hand through this reorganization and strategic shift," said Norman Young, an analyst at Morningstar.

"But a strong case could be made that the company needs a breath of fresh air, someone who can execute on the strategy but also bring an outsider perspective," he added.

That could mean selling the Xbox and abandoning Bing, or cutting short efforts to make tablets or other computers.


Throughout the last decade, as Microsoft's share price has remained flat, shareholders have called for bigger dividends and share buybacks to beef up their returns.

Microsoft obliged with a one-time $3 a share special dividend in 2004 and has trebled its quarterly dividend to 23 cents since then.

But shareholders still want a bigger slice of Microsoft's $77 billion cash hoard, $70 billion of which is held overseas.

Rick Sherlund, an analyst at Nomura, believes that if the retirement of Ballmer means the company is listening to ValueAct and its supporters, then action on the dividend and share buyback could perhaps happen as early as September 19, when Microsoft hosts its annual get-together with analysts and is expected announce its latest dividend.

"The momentum of shareholder activism is well underway and likely to benefit shareholders even though the process of how this unfolds is not certain," said Sherlund.

The lackluster performance of Microsoft's stock has long been the stick that shareholders beat Ballmer with, and it has looked all the worse compared with the staggering gains made by Apple Inc under Steve Jobs.

Yet Ballmer - who owns just under 4 percent of the company - never showed any doubts about his intention to stay in the job. His old friend and ally Bill Gates, who still owns 4.8 percent of the company, never wavered in his public support.

The first public signs of dissent on Microsoft's board came in 2010, when Ballmer's bonus was trimmed explicitly for the flop of the infamous Kin 'social' phone and a failure to match Apple's iPad, according to regulatory filings.

It was around that time, though not necessarily connected, that the board started considering how it would manage a succession, according to a source familiar with the matter. Ballmer and the board began talking to both internal and external candidates.

About 18 months to two years ago, Ballmer started thinking seriously about a succession plan, the internal source said.

The time since was not marked with glory for Ballmer, with a tepid launch of Windows 8, the disappointment of the Surface tablet, and a $731 million fine by European regulators for forgetting to offer a choice of browsers to Windows users.

Two to three months ago, Ballmer started thinking seriously about his retirement and concluded it was the "right time to start the process," the source said. That was shortly after ValueAct took a $2 billion stake in Microsoft.

July's gloomy earnings, which offered no immediate hope of quick improvement, may have sealed the decision. Ballmer said Friday he made the choice in the few days prior, and informed the board on Wednesday. Whether the board urged Ballmer to leave is not known.

The impending exit of Ballmer leaves a difficult and perhaps impossible choice to his successor - pushing a large and insular behemoth through a highly risky transformation to the mobile world, or clinging to an island of profitable but PC-centric businesses.

"I'm not sure there is someone who can do Steve's (Ballmer's) job 'better'. It's an incredibly difficult job, perhaps intractable," said Brad Silverberg, a former senior Windows executive and co-founder of Seattle venture capital firm Ignition Partners. "Perhaps the way the job is defined needs to change, and this is the harbinger of bigger changes to come."

(Additional reporting by Liana Baker in NEW YORK; Editing by Jonathan Weber and Miral Fahmy.

  |   August 23, 2013    2:50 PM ET

Microsoft dropped major news on Friday when it announced that its longtime chief executive, Steve Ballmer, is going to leave the company. While it's unclear if Ballmer left on his own or was forced out, it's apparent to everyone that Microsoft just isn't the behemoth it used to be.

Here are four charts that tell us why Ballmer is probably leaving Microsoft:

The Stock Has Tanked
First, the obvious: stock price. Microsoft isn't as valuable as it was when Ballmer took over, and keeping that share price up is a CEO's main responsibility. In 2000, Microsoft was worth nearly $400 billion. On Friday, it was trading at around $286 billion. Lose several billion dollars like that, and investors will take issue.

microsoft charts

No One Is Buying PCs
Underlying that stock drop is the decline of Microsoft's main business: Windows. The PC operating system is the company's biggest money-maker, but customers are increasingly using cell phones and tablets to access the Internet and do everything else they do with computers. Analyst Horace Dediu of Asymco shows how that trend caught up with Microsoft by 2011, when Windows sales actually started declining year over year.

Everyone Buys Tablets
And more than any other product, it's tablets that are replacing PCs that run Windows. See how PC sales slow down as tablet sales shoot up, in this data from research firm IDC.

microsoft charts

And It's Probably Not Changing
By 2012, when Microsoft got around to releasing Windows 8 RT for tablets, the market had already been eaten by Apple's iOS and Google's Android. Microsoft sold far fewer Surfaces than it expected, causing it to take a nearly $1 billion writeoff. The dominance of those two top operating systems is projected to last for some time.

microsoft charts

Alexis Kleinman   |   July 26, 2013   11:29 AM ET

Microsoft boss Steve Ballmer is finally admitting what everyone has been thinking: Microsoft made a huge mistake with the Surface RT tablet.

Last week, the company disclosed that it lost over $900 million on the low-selling tablet computer, and during an internal Microsoft event this week, Ballmer put the disaster into simple, understated terms, The Verge and Neowin separately reported.

"We built a few more devices than we could sell," Ballmer reportedly said.

Despite some good reviews, Microsoft had an extraordinarily difficult time getting the Surface off of shelves, and an overwhelming number of Surface RT tablets have been left unsold. If you break down the $900 million Microsoft lost on the Surface RT, it comes out to about 6 million unsold devices.

Still, Microsoft is working on the next generation of the tablet, and internal response to the new device has been positive at Microsoft, Neowin reports.

It's not just the Surface that has been letting the company down; Microsoft is not selling enough Windows products in general. But Microsoft does have one bright spot: Windows Phone 8 is beating BlackBerry for the coveted No. 3 spot in the smartphone market.

Dino Grandoni   |   July 19, 2013    3:44 PM ET

In some unknown warehouse presumably sits a pile of millions of beautiful, unused Surface RTs, the tablet computer that was supposed to resurrect Microsoft. Late Thursday, the company revealed for the first time that it has failed to entice many people to buy the product, and the software maker made an unexpected, $900 million writeoff on its unsold Surface inventory. The losses don't end there: On Friday morning, Microsoft shed $30 billion in value after its stock tumbled 10 percent.

According to one calculation, that loss translates to nearly 6 million sleek and rather stunning machines that consumers have decided they don't care to own. No matter how the math works out -- the company would not provide exact sales numbers -- that heap of Surfaces just burned a nearly $1 billion hole in Microsoft's pocket.

The irony of the Surface debacle is that Microsoft actually managed to design a product that many reviewers admired, but it failed anyway -- underscoring the degree to which this once-dominant technology company appears to be past its moment. Good, bad or mediocre, the Surface was apparently doomed on arrival because that arrival was way too late, with the market already claimed by Apple’s wildly popular iPad.

How did such a powerful company manage to engineer such a colossal loser?

A number of factors conspired -- each the result of a miscalculation from the company executives, which probably explains why CEO Steve Ballmer reshuffled leadership in Redmond and put one person, Julie Larson-Green, in charge of all hardware. Let's break down a few numbers on why this tablet bombed so badly:

  • 30 months, or the amount of time between the release of Apple's first iPad and that of the Microsoft Surface. That, apparently, was all the time Apple needed to extend its walled-off ecosystem of apps and music to tablets. Had Microsoft foreseen that the world was ready to use slabs of glass as computers -- and having made an ahead-of-its-time tablet in the early 2000s, it should have -- it could have beat Apple to the punch.
  • $100, or the difference between the cheapest full-sized iPad and the cheapest Surface RT (with cover) when it first arrived. Say you're the sort of luddite who hadn't gotten around to buying an iPad, and had to choose between it and the Surface. Advantage still goes to Apple if you own an iPhone with a bevy of purchased apps or own an iTunes account full of purchased songs. Microsoft could have still swayed that customer with a lower price point -- but decided that its tablet should be significantly more expensive. It took until this month for Microsoft to finally lower prices and undercut the iPad.
  • 20 stores, or the number of physical retail locations Microsoft had open when it first announced the Surface. Taking a major cue from Apple, Microsoft now has a retail strategy of opening Microsoft-branded stores. Initially, the stores were going to be the only physical place where you could buy a Microsoft-branded tablet. But Business Insider counted only 20 Microsoft stores after the Surface was first announced. Even though the tablet could be ordered online, people often want to feel and test out something in real life before putting down hundreds of dollars to buy it.

Leaks suggest that Microsoft is expected to sell its second line of Surfaces within the year. Microsoft is one of the few companies rich enough to blow nearly a billion dollars selling a product and continue full-steam doing the same thing -- which, it should be noted, is some people's definition of insanity. Get ready to watch, GIF-like, Microsoft stumble again.

Or maybe not. As Yahoo News' Jason Gilbert points out, there was considerable excitement for the Surface when it was previewed at a hush-hush media event last year. When it finally went on sale, there were swarms at Microsoft Stores -- as if it was made by Apple! Reviews were mixed, but certainly not bad enough to scare away diehard Microsoft fans.

Even if sales didn't meet that stir, the hype showed a pent-up desire for a tablet that doesn't run on software made by Apple or Google. Microsoft is hoping the same thing is true of smartphones, and is having more success is that category. Windows Phones have edged out BlackBerry as the No. 3 operating system.

Bill Rigby   |   July 18, 2013    6:11 PM ET

(Reuters) - Microsoft Corp on Thursday reported lower-than-expected quarterly earnings as slow personal computer sales ate into its Windows business and the company took an unexpected $900 million charge for its inventory of unsold Surface tablets, sending its shares down 5 percent after hours.

The massive charge underlines the struggles of the world's largest software company, which last week announced a deep reorganization to transform itself into a "devices and services" leader, but is struggling to make mobile devices as attractive as those by Apple Inc or Google Inc.

"That's the biggest miss we've ever seen from Microsoft, the biggest that I could remember," said Brendan Barnicle, an analyst at Pacific Crest Securities. "It looks like everything was weak and that's what we need an explanation on."

Microsoft shares fell 5 percent in after-hours trading, tumbling from 5-year highs. Before the close, the shares were up 32 percent this year, beating a 19 percent rise in the Standard & Poor's 500 index.

Microsoft said the $900 million charge was related to its Surface RT tablet, the version of its tablet running on ARM Holdings-designed chips. The Surface was meant to challenge Apple's iPad when it was launched alongside Windows 8 in October, but has not sold well.

Earlier this week, Microsoft said it was drastically cutting prices and expanding distribution of the model to entice buyers, reducing the value of Surface devices in its inventory.

"We do know we have to do better, particular in mobile devices," Amy Hood, Microsoft's new chief financial officer, said in a telephone interview. "That's a big reason we made the strategic organizational changes last week."

Microsoft's biggest shake-up in five years, unveiled by Chief Executive Steve Ballmer last week, creates a single devices unit for the first time at the company, suggesting that it will double down on its so-far unsuccessful move into hardware.

Redmond, Washington-based Microsoft reported fiscal fourth-quarter profit of 59 cents per share, compared with a 6 cents per share loss in the year-ago quarter when it wrote off the cost of a failed acquisition.

Wall Street had expected earnings of 75 cents per share, on average, according to Thomson Reuters I/B/E/S.

Revenue rose 10 percent to $19.9 billion, helped by sales of Microsoft's Office suite of applications, but fell short of analysts' average estimate of $20.7 billion.

The sales of Windows rose slightly, but only because of the inclusion of some deferred revenue, weighed down by an estimated 11 percent dip in PC sales in the quarter.

(Additional reporting by Liana Baker in New York; Editing by Richard Chang)

By RYAN NAKASHIMA   |   July 18, 2013    5:20 PM ET

LOS ANGELES (AP) — Less than a year after Microsoft entered the tablet computer market with the Surface, the cracks are starting to show.

The software giant on Thursday booked a large write-off to its Surface RT business after it slashed prices on the tablets to stimulate demand this week. Its quarterly earnings results also showed that Windows 8, an operating system designed to bridge the divide between PCs and tablets, has been so poorly received that it contributed to a revenue drop in its operating system software unit.

The missteps in both strategic product lines disappointed Wall Street and shares plunged nearly 7 percent to $33.10 in after-hours trading Thursday.

The write-down for expected losses on the Surface RT tablet amounted to $900 million. Even without it, Microsoft's results would have fallen short of expectations.

The results came a week after the company announced a major reorganization to help it transform into a "devices and services" company that is less reliant on providing software for personal computers. The earnings miss raised new questions as to whether the transition will succeed.

"It doesn't inspire a lot of confidence," said Nomura Securities analyst Rick Sherlund. "You're in the hardware business now, and pretty shortly after entering it you have a pretty big write down. That's embarrassing."

Both Windows 8 and the Surface tablet represent Microsoft's big bets on the tablet computer market as PC sales continue to decline. Research firms IDC and Gartner said last week that global PC shipments fell 11 percent in the April-June quarter. It was the fifth consecutive quarterly decrease.

Acknowledging the company's difficulties with the change, Microsoft Chief Financial Officer Amy Hood told investors on a conference call that "this journey will take time."

"We know we have to do better," she said. "We are confident we are moving in the right direction."

Microsoft cut the price of Surface RT from $499 to $349 on Sunday, a move designed to spur sales amid sluggish demand.

Microsoft began selling Surface tablets in October. The company shipped about a million tablets in the first three months of 2013, according to research firm IDC. That includes about 260,000 of the slimmed-down RT version and 750,000 of the Pro version of Surface, which is compatible with older Windows programs.

The shipments gave Microsoft a meager 2 percent share of the tablet market. Apple Inc. remained the leader with 39.1 percent and was followed by Samsung Electronics Co., AsusTek Computer Inc., Inc. and Acer Inc.

Microsoft also saw revenue from its flagship Windows operating system decline 6 percent in the recent quarter after excluding the late recognition of revenue from last year, when it offered discounted upgrades to users of older versions of Windows.

Consumers haven't responded well to Microsoft's latest operating system, Windows 8, and the results reflect the poor reception. IDC has said the new operating system is contributing to the longest slump in the history of personal computer sales. Gartner disagrees that Windows 8 is to blame.

Brendan Barnicle, an analyst with Pacific Crest Securities, said the entire PC market is undergoing a massive shift, especially as device makers increasingly develop their own operating systems, like Apple Inc. and Google Inc. do for their tablets and personal computers.

"Microsoft can't charge $100 per device for Windows the way they could 20 years ago," Barnicle said.

In a sign that Microsoft is adjusting, the company said it expects to derive 65 percent of Windows revenue from third party computer manufacturers in the July-September quarter, down from 75 percent a year ago, prior to the Surface launch. More Windows revenue is coming from its own Surface line.

Revenue and profitability improved in Microsoft's other lines of business, including enterprise software, servers and tools, the Xbox video game division and the Bing search unit, but those results also fell short of analysts' forecasts.

Net income in the April-June quarter came to $4.97 billion, or 59 cents per share, reversing a loss of $492 million a year ago when it wrote down almost the entire value of its 2007 purchase of online ad service aQuantive.

Excluding the negative 7-cents-per-share Surface charge, earnings were 66 cents per share, short of the 75 cents per share expected by analysts polled by FactSet.

Revenue grew 10 percent to $19.90 billion, also below the $20.72 million expected.

Dino Grandoni   |   May 23, 2013    1:55 PM ET

Microsoft's newest ad pits an up-and-coming gadget against an established foe. There's a white background, snarky "dialogue" and a comparison of two products, one doing things the other can't. If this doesn't sound very familiar, it should.

The company's latest spot, an ad for Windows 8 tablets, uses a Siri voice to hawk features the virtual assistant supposedly envies in her tablet-cousin. Placed side by side, the robotic monotone "Siri" says, "I'm sorry, I can only do one thing at a time," referring to the Windows 8 ability to have two apps open at once on a screen. She adds, "And I guess PowerPoint isn't one of those things," referring to the lack of Microsoft Office apps on iOS.

Setting aside the dubious claim that people are clamoring for PowerPoint on tablet, the ad is strange for a few reasons. By having Siri narrate, Microsoft decided to highlight Apple's voice-command assistant. While Siri may not be universally popular, the product outshines the Microsoft-made equivalent, which just transcribes speech instead of following orders. The ad compares prices, too: $699 for a high-end 64GB iPad vs. a $499 Asus VivoTab Smart with the same amount of memory. Don't worry that the Microsoft Surface RT -- Microsoft's homemade and highly-touted answer to the iPad -- retails at the exact same price as the high-end iPad when the keyboard touch cover is included.

Recently, Microsoft's ad department has been in attack mode. It took aim at Google with a recent "Scroogled" campaign, which tried to convince privacy-conscious consumers that Redmond does less data-collected than Mountain View. Microsoft is in the same position in which Apple found itself a decade ago when it ran its now-famous "Mac vs. PC" commercials: Macs then were simply an also-ran to PCs running Windows, and the company was trying to grab market share with an edgy new ad.

Today, though Windows' share of the market is still bigger than Apple's, its share of PC profits is not.

Microsoft realizes it must acknowledge certain things in its ads. In this case, that the iPad is the dominant tablet. But there are better ways for Microsoft to tap into its potentially resurfacing coolness. Remember the Microsoft ad last November that gently mocked Internet Explorer haters? That was the right way for the company to reestablish that it might just be somewhat stylish again. Copycat ads, most likely, aren't going to help much.

  |   April 11, 2013    9:12 AM ET

(Reuters) - Microsoft Corp is developing a new lineup of Surface tablets, including a 7-inch version expected to go into mass production later this year, the Wall Street Journal reported, citing people familiar with the company's plans.

Microsoft executives felt they needed to keep pace with the growing popularity of smaller tablets like Google Inc's 7-inch Nexus and the 7.9-inch iPad Mini introduced by Apple Inc last October, one person told the paper. (

Microsoft declined to comment to the Wall Street Journal. The company could not immediately be reached for comment by Reuters outside of regular U.S. business hours.

(Reporting by Sakthi Prasad in Bangalore; Editing by Daniel Magnowski)

Undercover Shopper: Apple vs. Microsoft Store

John Pavley   |   March 31, 2013    9:01 PM ET

During the work week I'm a Blogger-CTO for a mighty Internet disrupter. But on the weekends I'm just an ordinary joe. I trade in my starched button-down shirt and high-tech urban warrior shoes for a well-worn polo shirt and beat up old sneakers. I become a hapless shopper, out for the afternoon with my family looking for bargains and decent food at the food court at the mall.

That transformation makes me a perfect undercover shopper. As I travel from store to store I look like an easy mark, ready for a clever sales clerk to pounce and part me and my credit card-powered money. But I try to be a crafty shopper: I try not to buy on impulse and I try to research everything that I do buy. And I always remember that stuff bought on credit automatically costs 15 percent to 30 percent more.

At one of the local major malls we are blessed with both an Apple Store and a Microsoft Store. I was excited to shop them side-by-side in my own undercover shopper exercise. Long ago and far away in the mists of time I used to buy computers at computer stores: an IBM PC/AT clone and a Macintosh 512KE. Those places were independently owned resellers located in strip malls and populated by middle-aged sales people who were certified and really knew their stuff. In Princeton the best computer store was Clancy-Paul. As a college kid in the late 1980s I would hangout with their techs and absorb as much IBM and Apple hardware lore as I could.

Ready to step into the modern incarnation of the computer retail shop I decided my first stop should be the Microsoft Store. Outside the store an Xbox and Kinect was setup and a crowd of kids were holding an ernest dance-off. They were seriously competing and seriously good. This Olympian competition looked promising for venerable Microsoft.

Inside the Microsoft Store it was a different story. There seemed to be more staff than customers. I was pounced on three times before I got to the table with the Surface Pros. A very eager sales dude talked me though using Microsoft's new swanky tablet and explained its nifty features and how I could get back to a Windows 7 like desktop at the touch of a button. He seemed to have answers for my every question: How is the Pro different from the RT? Can I run my Windows 7 software on the Pro? Why does it have a pen, a touch screen, and a keyboard? (He didn't have a good answer for that last one). The deeper I went below the surface of the Surface Pro the more agitated that sales dude became. Eventually he walked away as I discovered the device needed its wireless Internet connection reset, the Microsoft App store was nearly impossible to navigate, it was hard to find the app I downloaded, and the freshly downloaded app didn't run right off the bat.

I felt bad for the Microsoft Store. The devices and accessories looked sharp and smart. But they were heavy to hold and didn't work as advertised. I would have liked to buy a Surface Pro but I think I'll wait for Pro 2 and Windows 9. Microsoft is the king of "good enough" (except for Xbox) and a Windows-based product requires a healthy third party system support ecosystem to get it to work for consumers. Alas, Clancy-Paul went out of business in the 1990s.

I probably don't have to say much about the Apple Store: The staff never approached me; It was packed and noisy with the energy of a dance floor but with adults and not kids (I think it actually smelled); The Apple products were everywhere and I could explore them in peace; The accessories on the shelves in the back were really interesting: Nike FuelBands, Beats headphones, Jambox wireless speakers. The Apple sales staff were mostly talking to each other and seemed to be engaged in deep philosophical locutions.

So why is Microsoft failing at selling pricey devices directly to consumers while Apple is clearly still succeeding? For the same reasons that JC Penney is failing at replicating the Apple Store experience. We also visited "Pennies" at the same mall and like the Apple Store it was a bright, savvy, consumer-oriented experience. They even had iPads out where I could browse Levi jeans without touching them. JC Penney hired the guy who invented the Apple Store concept a couple of years ago (not Steve Jobs, Ron Johnson) with the idea of radically updating the JC Penney's look and feel. But like the Microsoft Store Ron Johnson's user experience is sterile and museum-like. You can't apply Apple like a magic formula to a failing business model and expect consumers to come running back.

My wife and I call JC Penney "Pennies." As Pennies shoppers for 30 years we expect well-made clothing and housewares for a value price and, of course, great coupons. My wife used her coupons to get $40 worth of clothing for $7 that day. That felt really good, like a personal victory, a unique experience that keeps us coming back. Ron should embrace the "Pennies" and not try to turn it into an Apple-ish fantasyland.

Microsoft should do the same thing and focus on its core consumers: Kids. Bring the Xbox dance revolution inside the store. Xbox's are awesome and Microsoft is starting to recognize that awesomeness. Microsoft needs to pivot hard into the Xbox and build up its ecosystem with ruthless focus that turns those dancing kids outside the store to lifelong Microsoft users. I can see that some folks at Microsoft get it but their efforts are drowned out by the need to keep Windows relevant and Apple contained. Spend 5 minutes outside the Microsoft Store and you will see -- Not one of those kids gives a hoot about Windows or Apple. They came to dance.

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