You have to give credit where it’s due. Though Microsoft (NASDAQ:MSFT) still is nowhere near toppling Apple (NASDAQ:AAPL) as the king of cool consumer technology, the recently unveiled tablet/laptop hybrid called Surface is going to be an interesting competitor in the red-hot tablet race.
And from an investor’s point of view, one has to be thinking ahead about the fiscal impact that could be made by Surface — if consumers welcome it with even just partially open arms.
See, like Apple’s iPad, most of the guts and assembly of Microsoft’s new portable device isn’t something Microsoft actually makes or does. It pays other companies to come up with those solutions. Given the way Apple’s iPads and iPhones have dragged so many component makers along for the ride, though, solid demand for Surface could translate into solid demand for its suppliers. The question is, who wins and doesn’t win if Surface gets traction?
The consumer-oriented model that runs WindowsRT is presumably going to be powered by a microprocessor and chipset built by ARM Holdings (NASDAQ:ARMH) and Nvidia (NASDAQ:NVDA), which most likely means a Tegra central processing unit will be the brains of the lower-end device. The Surface Pro, which will be operated by Windows 8, will be using a Core i5 CPU, which is made by Intel (NASDAQ:INTC).
It’s not just about the processor, though. The device offers a touchscreen display, which requires a certain caliber of input-handling. That’s potentially good news for Cypress Semiconductor (NASDAQ:CY), which already is powering other devices running Windows 8.
Of course, these are just educated guesses based on existing supply and manufacturing relationships. Nothing is set in stone yet, and the company has dropped few hints about what’s under the hood of the newly debuted tablet.
As if the onset of the tablet era wasn’t frustrating enough, Microsoft just drove the proverbial dagger into the backs of Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL).
How so? Although these outfits have watched PC and laptop sales decline for several years now, there was at least some solace knowing they’d each be coming out with a tablet that was run by Windows 8, keeping them relevant somewhere between their prior roles as kings of computers and their contended role as tablet makers. Now, though, it’s not clear whether Microsoft is going to give them leftovers from the launch of their own tablet business.
It’s a risky maneuver from Microsoft, to be sure. Though it’s a fading business, PCs and laptops still are selling, with most of them being operated by Windows. If Microsoft undercuts them on the tablet front, will these PC makers maintain their enthusiasm about a pre-installed Windows OS? (Sadly, they might have little choice but to just suck it up, though it’s clearly more PC and laptop competition they didn’t need.)
Assuming this list of winners and losers is essentially on target, the next question is, how big will the benefit be if Surface tablets actually make a dent?
Unfortunately, it’s a question of degrees: It depends on how strong that strength is. We do have some perspective, though.
In 2011, STMicroelectronics (NYSE:STM) nearly doubled its revenue — from 2010’s $353 million to last year’s $638 million. How? The company sells the electronic gyroscope found in the iPhone and iPad. It’s the hardware that makes the screen image flip from portrait (up and down) to landscape (side to side) when the device itself is turned sideways or right-side up. It’s not a new technology, but the gyroscope didn’t become a prolific seller for STMicroelectronics until it became standard last year’s on Apple’s hot-selling tablets and phones.
Skyworks Solutions (NASDAQ:SWKS), which makes mobile broadband technology, is another iPad explosion beneficiary. Granted, it doesn’t exclusively supply to Apple. It’s growing at least in part because mobile broadband connections are growing universally, from 500 million subscribers a couple years ago to a projected 2.5 billion by 2014. But, let’s face it: The iPhone is leading the charge, and that’s good news for Skyworks. Revenue has soared from $802 million in 2009 to $1.4 billion last year, and better still, profits are growing even faster than revenue, reaching $226 million in 2011.
Yes, those are a couple of cherry-picked extreme cases, and suppliers that have customers other than Apple won’t see improvements as dramatic as those. Every little bit helps, though.
That being said, the reality is — for the time being — there’s more we don’t know about who’s making Surface components than we do know. Intel, ARM and Nvidia are the frontrunners, but it’s the more obscure suppliers that could see the biggest (relative) benefit.
Of course, all this is moot if Surface doesn’t sell well. Let’s at least give it a chance to break into the market.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.