SEATTLE – Microsoft, struggling to break into the tablet market, has backed off plans to introduce a smaller version of its Surface tablet based on Qualcomm processors, people with knowledge of the decision said.
Microsoft Chief Executive Officer Satya Nadella and Executive Vice President Stephen Elop decided that the product in development wasn't different enough from rivals and probably wouldn't be a hit, said one of the people, who asked not to be identified because the plans weren't public. Engineers had been working on the device and had planned to unveil it as early as Tuesday at an event in New York, two people said.
Instead, the company removed any references to Surface devices based on Qualcomm's processors from the event and unveiled Surface Pro 3, an upgraded version of its pricier Windows-based tablet, which uses chips from Intel and features a larger 12-inch screen. Microsoft is still working on smaller versions, Panos Panay, who runs the Surface business, said in an interview after the event. Panay declined to provide details on future products.
Microsoft's Surface had just 1.3 percent share of the market in the first quarter, while smaller-size tablets accounted for 53 percent of sales in the period, according to researcher IDC. Nadella has said he wants to turn the Redmond, Wash.-based company into one that focuses on "mobile first, cloud first."
Jon Carvill, a spokesman for Qualcomm, declined to comment. Asked about the Qualcomm device, which would have used ARM Holdings technology, Panay said the company never announced it and is working on a lot of things.
"Windows on ARM continues to be an important element of the Windows strategy," Microsoft said in an e-mailed statement. The company didn't answer explicitly whether there would be future Surface products on ARM.
There are already smaller versions of Windows-based tablets from companies like Dell and Toshiba, as well as rivals running other operating systems like Apple's iPad mini.
Microsoft and Qualcomm have been working together on Surface for about a year and the project had been proceeding until recently, when Nadella and Elop declined to give it the final go-ahead, the people said.
As a result, Microsoft doesn't currently have an approved project to create a smaller tablet, but it could look at the category again in the future, said one of the people.
By choosing to focus on larger devices and the Intel-based Surface Pro, Microsoft is making a bet on an area that has sold well for Surface, even though tablets using ARM technology dominate the broader tablet market. The Pro versions of Microsoft's device are outshipping the RT version, which uses ARM-based chips, by a margin of about four to one, according to IDC. So far this year, sales of tablets with screens bigger than 9 inches are down 12 percent, according to NPD Group Inc.
While succeeding with Surface Pro remains an "uphill battle," Daniel Ives, an analyst at FBR Capital Markets & Co., said Microsoft has a better shot in that segment where it can convince consumer and corporate customers that the device can replace laptops.
The new Surface Pro 3 unveiled Tuesday is thinner and lighter than its predecessor, and will starting from $799.
