Why Windows RT Will Survive $900M Later

Yesterday, Microsoft announced that they were writing off $900M in Surface RT inventory.  This is based on price reductions on Surface RT to clear inventory.  If we assume that Microsoft factored in $150 per unit and we do some simple math, we can then estimate that Microsoft is sitting on 6M Surface RTs.  This is an absolute abomination, and I don’t think this is a surprise to many that Surface RT didn’t sell well, but what is a surprise is the magnitude of the write-down.  Even with nearly $1B in write-downs, I don’t think Microsoft will cancel Windows RT and I want to share my thinking.

I would be remiss if I didn’t first give my opinion on why Windows RT didn’t sell well.  First, I disagree with the notion that it has to do with the dual tablet-PC nature of Windows 8, and for that matter, RT.  Research I have conducted and research I have seen shows that once users actually use a use a touch-Windows device, they like it.  It’s that trial that is the tough part.  What doomed Surface RT, plain and simple, was the lack of premier apps and because the tablet market shifted to the 7-8″ form factor.  This isn’t the main topic of this post but I needed to weigh in.

To better understand why Microsoft will keep investing in Windows RT, we have to know why they invested in it in the first place.  When Microsoft would have had to make the decision to support an ARM-based Windows RT, Intel did not have a competitive mobile part and had just come off of some very public mobile failures, Menlow and Moorestown.  The CloverTrail schedule was risky, too, and Microsoft felt that they needed lower power ARM-based SOCs to meet the battery life bar set by the iPad and the Motorola Xoom.  The other factor is that in the minds of both Microsoft and Intel, any dollar invested by an OEM into each others products, is a dollar that they lose.  Microsoft is interested in cheap hardware so they can charge more for software.  Intel is interested in cheap software so they can charge more for hardware.  Makes sense, right?

The first reason Microsoft will keep investing in Windows RT is to keep Intel competitive on tablets.  Microsoft thinks that if they don’t hold something over Intel’s head, they won’t see solutions in the future as competitive as Bay Trail which, at least on paper, looks very competitive for holiday 2013 Windows 8-based tablets.  Microsoft is also seeking to lower prices on 7-8″ tablets, and they see ARM-based SOCs from someone like Rockchip or Huawei providing that cost reduction necessary to enable Microsoft to charge more for software or lower the product street price. We also need to factor in phones.  Windows Phone 9 will most likely share the same kernel as Windows RT (9) and therefore it would make sense to cease development now for ARM to revive it a few years later.  Finally, Microsoft is thinking wearables and IoT devices based on this shared Windows RT (9) kernel, and so far, Intel doesn’t have a roadmap that would provide this level of performance/watt necessary to last weeks on a single charge.

So even with nearly $1B in “losses” racked up so far, Microsoft will trudge on, because they believe that they need ARM-based silicon to cover all their product segment bases and increase the price of their software to OEMs.

Published by

Patrick Moorhead

Patrick Moorhead was ranked the #1 technology industry analyst by Apollo Research for the U.S. and EMEA in May, 2013.. He is President and Principal Analyst of Moor Insights & Strategy, a high tech analyst firm focused on the ecosystem intersections of the phone, tablet, PC, TV, datacenter and cloud. Moorhead departed AMD in 2011 where he served as Corporate Vice President and Corporate Fellow in the strategy group. There, he developed long-term strategies for mobile computing devices and personal computers. In his 11 years at AMD he also led product management, business planning, product marketing, regional marketing, channel marketing, and corporate marketing. Moorhead worked at Compaq Computer Corp. during their run to the #1 market share leader position in personal computers. Moorhead also served as an executive at AltaVista E-commerce during their peak and pioneered cost per click e-commerce models.

5 thoughts on “Why Windows RT Will Survive $900M Later”

  1. “I disagree with the notion that (the RT’s failure) has to do with the dual tablet-PC nature of Windows 8, and for that matter, RT.”

    Respectfully disagree.

    “What doomed Surface RT, plain and simple, was the lack of premier apps…”

    Agreed, although Long Tail apps are even more important.

    “…and because the tablet market shifted to the 7-8″ form factor.

    Hmm. Maybe.

    I won’t speak to whether Microsoft WILL continue RT. I’ll just say that I don’t think it much matters.

    1. Surface RT failed because it was saddled with Windows RT, and because the hardware was instantly obsolete, coming out near the end of the year with the lackluster Tegra 3 SoC.

      Windows RT failed for everyone, not just on Microsofts Surface RT. Pretty much all Windows RT partner machines have been abandoned without replacement.

      I have called RT an obvious failure since it was announced. As it stands it is nothing but a subset of Windows 8-x86, losing nearly all the desktop functionality of true Windows, but still saddled with the inconvenience/overhead/footprint to carry that largely dysfunctional desktop. It is incomprehensible to me why anyone would choose this mess. Add to this the confusion between Windows 8 and RT, that I believe cost both versions.

      I have no doubt Microsoft will try again, but with what I see from Windows 8.1, not much will change. The desktop remains, the overhead remains. Launching near year end means it will be again compared to full windows running on Intels very impressive new Baytrail Atoms which will likely handily beat any ARM chip available for performance, while matching the power envelope.

      This is just repeating the exact same fight, and I would expect the same outcome. Except this time, I expect even fewer OEMs will be joining Microsoft for round two.

      Windows RT simply has no hook, no reason to exist when compared with full Windows on Atom chips. Before we even talk about how it fares against external competitors, it needs some competetive advantage to offset it’s weakness against it’s internal competitor: Full x86 Windows.

      IMO, the necessary (but by no means sufficient) things to give RT a reason to exist:
      Aim it at sub 10″ tablets.
      Strip it of Win32 legacy overhead (including office, which is mostly useless below 10″).
      Price it more like Windows Phone: $10-$15, so it can be price competetive with Android tablets.

      Together that should allow the creation of $200-$300 RT tablets that will at least be price competetive. Perhaps for Microsofts 3rd try.

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