AP/Mark Lennihan One of the bright spots in Microsoft’s (MSFT) quarterly report last week was that Surface sales more than doubled sequentially. The software giant rang up $893 million in sales of its Windows-fueled tablet during the holiday quarter, up sharply from the $400 million in sales it cleared during the three months ending in September.
The uptick wasn’t really a surprise. Tablets sell briskly during the holidays, and Microsoft also updated its product line in October with the release of Surface 2 and Surface Pro 2. However, the more that one thinks about it, the worse that Microsoft’s $893 million in Surface sales becomes.
Apple (AAPL) reported its financial results for the same three months earlier this week. It sold nearly $11.5 billion worth of iPads during the quarter, up from the $6.2 billion it sold during the September quarter. Technically speaking, Microsoft’s 123 percent increase is larger than Apple’s still impressive 85 percent spike in sequential sales. However, is there any doubt that Apple is the one that’s doing better?
How many Surfaces did Microsoft actually sell during the quarter? Well, the Surface 2 starts at $449, but the Surface Pro 2 can set buyers back as much as $1,799. Set aside the sticker shock for a $1,799 tablet, and let’s point out the the cheapest Surface Pro 2 — the one running Windows 8.1 Pro instead of the scaled-down Windows RT operating system — starts at $899. So when Microsoft says $893 million in tablet sales it likely translates into a little more than a million devices.
Apple on the other hand sold more than 26 million tablets during the quarter. If we look at the unit levels sequentially, Microsoft’s sales grew by less than a million sequentially while Apple sold nearly 12 million more iPads than it did during the prior three months.
In short, let’s not celebrate Microsoft’s feat of selling somewhere between a million but far less than 2 million tablets during the holidays. Despite an aggressive marketing campaign, new tablets, and slashing $50 off the Windows RT version, this was not a blowout success for Microsoft.
It’s No Android
It’s easy to compare the Surface to the iPad because both companies were generous enough to give us actual revenue figures. It’s not so easy to pit Microsoft’s touchscreen gadgets to those running Google’s (GOOG) Android because there are so many different companies making them.
That’s probably a good thing for Microsoft, because Android is quickly establishing itself as the global standard. Industry tracker IDC is forecasting Android’s market share to hold steady in 2014 at 61 percent of all tablets sold. The iPad is expected to slip from 35 percent to 33 percent. Yes, that will be at the expense of Windows tablets going from 3 percent to less than 6 percent, but we’re still talking about a sliver of the market.
Microsoft introduced the Surface in late 2012 to combat the iPad and Android tablets, which were slicing into its Windows profits by replacing PC sales. Hardware companies weren’t hopping on Windows or Windows RT to power their tablets, which left Microsoft little choice but to create its own hardware.
The problem, of course, is that tablets aren’t exactly computers. Consumers use them to stream video, run apps, and surf the Web. You don’t really need them to provide a Windows experience in most cases, so why pay more for one? Lower prices are how Android has wrestled market dominance away from the iPad.
It’s not hard to find Android tablets for less than $200 these days, and if that has eaten into iPad sales, its obvious why the Surface is having trouble establishing a foothold charging even higher prices for its more functional Surface Pro 2.
It’s all relative, especially when we discuss absolute sales. Microsoft may make things interesting with its Surface, but selling less than $1 billion worth of tablets at a time when Apple’s clearing $11.5 billion — and even that is only good enough to be a distant second to Android — is not going to cut it for Microsoft.
Microsoft is too hungry and too rich to dismiss entirely, but it has a long way to go if it’s ever to make the tablet market a three-way contest.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our newsletter services free for 30 days.