Microsoft (MSFT) Launches New Line of Surface Products

At its all-digital launch event Wednesday morning, Microsoft Corporation (MSFT) announced eight new products for its Surface hardware line. Apart from the Microsoft Laptop studio, which is a completely new device, other devices from the company are refreshes of earlier products that have been upgraded with new features or fitted with new hardware.

The key question for investors and analysts is whether the new products will help boost revenue for Microsoft. Last quarter, the company's hardware devices accounted for roughly 4% of overall revenue.

Key Takeaways

  • Microsoft announced new Surface events at its all-digital event Wednesday morning.
  • Apart from refreshing its existing slew of smartphones and laptops, the company launched Microsoft Laptop Studio—a hybrid tablet and laptop.
  • The new products may not significantly affect Microsoft's overall revenue, which is dominated by its cloud division, but will further showcase capabilities for the latest version of Windows.

A New Lineup

Microsoft's new array of products is targeted at a broad audience base ranging from creators to people with disabilities and smartphone users. Here's a brief rundown of four products announced by the company. All products are available for preorder and will be sold to customers starting Oct. 5.

Surface Laptop Studio 

As its name indicates, the Surface Laptop Studio is a laptop that can hinged at an angle for better display or folded completely into a tablet. It is meant to be a replacement for the Microsoft Surface Studio desktop. The Laptop Studio comes equipped with a Surface Slim Pen that can be used for drawing or illustration purposes. According to the company, the pen has a motor that provides haptic feedback to the user to mimic the feel of an actual drawing pen.

The intended target audience for the device is the creator community, which can use it to design or run graphics-intensive software on the move. The studio will be available for $1,600, and the pen will retail for $130. Initial reviews of the device aren't too encouraging, with one reviewer calling the combination of a laptop and tablet "weird."

Surface Pro 8 Tablet 

The Surface Pro 8 tablet was delayed from last year due to COVID issues. The new edition features a bigger display—13 inches as compared to 12.3 inches on the Surface Pro 7—and a battery life of 16 hours. The Surface Pro 7 had a battery life of 10.5 hours. It also has support for Thunderbolt.

Users have a choice of Intel Core processors—i3, i5, and i7—for the tablet, and they can equip it with up to 32 GB RAM. The company says that it is 43% and 75% faster in CPU performance and graphics processing/display, respectively, than its predecessor. It also has a higher resolution and features Windows 11's Dynamic Refresh Rate, a feature that customizes resolution based on the application being used.

The tablet will begin retailing at $1,100, and its costs will vary based on additional costs, such as the addition of a Surface Slim Pen or type of processor used. Initial impressions of the device, at least from one reviewer, seem to be favorable.

Surface Duo 2 Phone 

The previous version of the Surface Duo phone, released in 2019, was a flop. The company seems to have learned from its mistakes and has incorporated feedback from users including 5G support and more cameras with high resolution. The device is actually two phones in one, and Microsoft calls the phone's current version "the world's thinnest 5G device." The starting price for the phone is $1,499.99.

Surface Go 3

The Surface Go 3 is a mini-laptop. Its previous edition—the Surface Go 2—was named as the best cheap laptop by some reviewers. The Go 3 is similar in it feature set to Go 2 and enables upgrades to Intel Core i3. Microsoft says that the change in chips will make the laptop 60% faster than its predecessor. 

Apart from the new products, Microsoft also announced three new accessories—a Slim Pen, an adaptive kit that can be used to customize its devices for people with disabilities, and a mouse that is 20% recycled ocean plastic.

Will New Hardware Boost Microsoft's Revenue?  

Microsoft doesn't break out sales figures for Surface products. The product line, which is almost a decade old, crossed $2 billion in revenue last year. But the road to that figure has been a tough one, with several mishaps and mistakes along the way. The company also faces formidable competition at both ends of the price spectrum—Apple, Inc. (AAPL) in the premium products category and a slew of PC companies, such as Lenovo Group Limited (LNVGF) and Dell Technologies Inc. (DELL), in the PC category.

"We do not believe the Microsoft Surface enjoys a moat of any kind. We do not believe that there is much, if any sustainable differentiation between a Microsoft Surface and generally competitive products such as a Windows or Mac laptop, an Apple iPad, or a Google ChromeBook. This is generally reflected in low(er) product gross margins," writes Morningstar analyst Dan Romanoff.

It is likely that the new batch of products will highlight capabilities for Windows 11, the latest version of the company's best-selling operating system, and Office 365, its productivity software. Switching costs, inherent in both applications, may drive hardware sales, and vice versa.