NEW YORK (AP) — Microsoft Corp. will need to price the new Surface tablet aggressively if it's to have a chance of attracting consumer's eyes away from the iPad, Wall Street analysts said Tuesday.
Late Monday, Microsoft said it would produce and sell its own tablets this fall. It is an unusual but not unheard-of move for Microsoft to make its own hardware. Its usual business model is to license software to other manufacturers, but it has made exceptions before.
Analysts noted that Microsoft's Surface tablets will have some features that set it apart from the iPad, but price would be the most important factor. Microsoft said the Surface tablet that's based on phone-style chips, like the iPad, would be priced like other tablets, which usually start at $400. The Surface tablet that runs on PC-style chips would cost more, in the $800 to $1000 range.
"Though pricing details are unclear, we believe Microsoft will need to significantly undercut the iPad to be competitive," said Peter Misek of Jefferies & Co.
"We believe consumers will require a healthy discount for Surface versus an iPad, something we believe will prove difficult given the new iPad starts at just $499 and the iPad 2 starts at a price of just $399," said Brian White of Topeka Capital Markets.
Microsoft risks alienating its hardware partners by making its own tablets, but has little to lose, given that it's so far behind in tablets, analysts said.
"With less than 10 percent combined market share, Microsoft can afford to lose the support of PC manufacturers in this sector," said Ronan de Renesse at Analysys Mason.
"Microsoft cannot sustain an aggressive device strategy while licensing Windows on tablets. The big question is, if Surface become as successful as the iPad, will Microsoft choose to stop licensing Windows on tablets?" de Renesse asked.
Microsoft shares were up 18 cents, or 0.6 percent, at $30.02 in pre-market trading.