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Microsoft to reboot tablet effort with new Surface

A year after its flubbed tablet introduction, Microsoft is back with a new Surface.

The US tech giant, which has invited media to a launch in New York, is seeking to correct missteps from its first try and gain a foothold in the tablet market dominated by Apple’s iPad and others using the Google Android operating system.

Details of the new device were not known, but many analysts expect a more powerful Surface tablet to help Microsoft build momentum in mobile computing.

Microsoft, which is trying to shift its focus to “devices and services” to better compete with Apple and Google, barely made a dent in the sizzling tablet market since introducing the first-generation Surface in October.

The company has not released sales figures, but reported tablet revenues of just $853 million in the fiscal year ended in June. Research firm IDC said Microsoft sold 900,000 in the first quarter of the year — a market share of just 1.8 percent — and even fewer in the second quarter. Apple by comparison sold some 34 million iPads in the first half of 2013.

Microsoft was forced to take an embarrassing $900 million writedown for “inventory adjustments” due to weak sales of the new tablet, which has a basic version and a more expensive “Pro” model.

Rob Enderle, analyst and consultant with Enderle Group, said he expects the new tablets to be much improved.

“This new release should be massively better than the first one. The trick will be getting folks to look at the product fresh,” he said.

Enderle said the first version “was too heavy, too expensive and had poor battery life,” and the upgraded Surface Pro lacked a key element, the Outlook email program.

Microsoft appears to have fixes these issues and now has a chance to gain some traction with a device that aims to serve as a tablet with some of the functionality of a laptop PC.

“Right now, people don’t want to carry a large tablet and laptop,” said Enderle.

“If you can consolidate into one product, it lightens your load and it’s a lot cheaper.”

Jack Gold, analyst at J. Gold Associates, said the first Surface “was not a complete device” and did not work with many Windows apps.

Gold said Microsoft can succeed with “a reasonably priced and performance-oriented Pro” to appeal to business users, but that the company “has to build momentum before Android makes it mostly irrelevant.”

Others argue that Microsoft’s strategy has become muddled as it tries to gain ground in the “high mobility” computing segment while still serving the hundreds of millions using conventional PCs on the Windows operating system.

Roger Kay at Endpoint Technologies Associates said Microsoft has been struggling to serve these sometimes conflicting goals.

“The ambiguity of Windows 8 is built into its architecture,” Kay said.

“Microsoft has been doing nothing but looking over its shoulder. You need to have your own vision of what people need.”

Kay said Microsoft still has a long road to become a meaningful player in mobile computing.

“High mobility and that form factor are up for grabs between Apple and Google and perhaps Microsoft, but Microsoft will be a distant third,” he added.

Kay said Microsoft’s best chance in the segment was to build momentum with its acquisition of Nokia’s phone business, and extend that into tablets.

Kash Rangan, analyst at Bank of America/Merrill Lynch, said Microsoft is hurt by a “diffused focus” as it tries to reorganize, search for a new chief executive and reboot its mobile strategy with its Nokia acquisition.

“We worry about the tsunami of changes the company is currently undergoing,” Rangan said in a note to clients with a “neutral” investment rating.

“The reorganisation, CEO change, acquisition of Nokia, and financial reporting structure change are all occurring simultaneously, and only serve to increase the complexity of the investment story.”