The Lowdown on Microsoft's Surface Tablet

Microsoft will initially build 300,000 Surface ARM-powered Windows RT and Ivy-powered Windows 8 Pro tablets, ramping up to between 3 million and 4 million units within the 2013 fiscal year, sources tell analysts. Microsoft Corp. (Nasdaq: MSFT) will end its fiscal year June 30, and the company plans to announce fourth-quarter and full-year results July 19.

Pegatron Corp., which has plants in Taiwan, the Czech Republic, Mexico, and China, will build the RT model with 32GB or 64GB of storage. Foxconn Electronics Inc. , also known as Hon Hai Precision Industry Co. Ltd., will build the Windows 8 Pro model with 64GB or 128GB of storage.

Rhoda Alexander, IHS director of tablets and monitor research, told us that people have said the production targets are too aggressive.

The tablets will initially support WiFi access, rather than cellular. Studies have shown consumers are more likely to access the Internet from their home or office through a WiFi connection. Sources tell Alexander that Young Fast will manufacture the touch panels for the Surface, and Samsung will make the touch screen glass.

The build cycle for the two products will run about three months apart. Most of the companies manufacturing for the Surface also build Apple Inc. (Nasdaq: AAPL) products, such as the iPad and iPhone.

I can't help but wonder if success will push Microsoft to purchase or build its own manufacturing plants, as Hewlett-Packard has done, and whether it would make sense to bring production into the United States? Alexander estimates iPad shipments for the first quarter of 2012 at 11.8 million units. For Microsoft, reaching distribution levels substantial enough to compete with Apple will depend on price and partners.

"Unlike mini-notes which used a similar 10.1" screen size, the Surface for Windows 8 Pro is less likely to have performance issues given its Intel Ivy Bridge processor instead of an Atom part," Richard Shim, an NPD Group analyst, wrote in a DisplaySearch blog post last week. "Its detachable design is expected to join a short list of emerging form factors that are expected to come out toward the end of the year with the expected launch of Windows 8."

One major hurdle: Windows 8 doesn't have a firm official launch date.

As much as Microsoft wants a piece of the tablet market, some analysts say the Redmond, Wash., company has hit a fork in the road. ABI Research says Windows will account for only 1.3 percent of tablet shipments in 2012, and the fragmented operating system strategy of Windows RT and Windows 8 could set the company back in terms of gaining marketshare.

Aside from the tablet market, Microsoft will attempt to take a bigger slice of the smartphone market. The same day Microsoft released information on its smartphone running Windows Phone 8, Nokia, HTC, Huawei, and Samsung committed to delivering the device this year. It will run on Snapdragon S4 chips from Qualcomm.

Microsoft has adopted a four-screen strategy designed to link content across smartphones, TVs, PCs, and tablets through a common operating system and cloud platform. This would enable the company to target ads across devices based on the Microsoft Live user log-in ID.

But hurdles remain. Microsoft's success with hardware has been limited to the Xbox 360. The Zune music player is failing, and Verizon stopped selling the Kin-branded mobile phone after about two months.

Will consumers and professionals give up their iPads for a Windows OS tablet? Or, rather than simultaneously shoving smartphones and tablets at a market becoming more enamored with Apple products, would it make more sense for Microsoft to release one and then the other? Let us know what you think.