Must-know: Why Microsoft isn’t launching a Surface Mini

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Microsoft backed away from plans to launch a smaller version of the Surface tablet

A few weeks back, Bloomberg had reported that Microsoft (MSFT) was planning to launch a smaller version of its Surface tablet, popularly known as the “Surface Mini.” The report also mentioned that the Surface Mini would use Qualcomm (QCOM) processors for the first time, after Microsoft had used Nvidia’s (NVDA) chips in the previous versions of Surface tablets. The launch of the Surface Mini could have helped Microsoft compete directly with Apple’s (AAPL) iPad Mini, which is still the most popular tablet on the market. However, on May 20, Microsoft only launched the Surface Pro 3 with a 12-inch screen, one of the biggest tablets in the market. The Surface Pro 3 uses Intel (INTC) chips and comes with a starting price of $799.

Tablet Market Size Q1 2014

What prompted Microsoft to shelve its plans to launch the Surface Mini?

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Of late, overall tablet market growth has slowed. As the chart above shows, the worldwide tablet market grew rapidly from 20.3 million in Q1 2012 to 48.6 million in Q1 2013 at a growth rate of 140%. However, in the last year, the market has grown slowly, to 50.4 million at a growth rate of 4%. The slowdown is even worse when we compare the Q1 2014 market size with Q4 2013, the holiday quarter, which was a sequential decline of 36%.

IDC explained the slowdown, commenting, “The rise of large-screen phones and consumers who are holding on to their existing tablets for ever longer periods of time were both contributing factors to a weaker-than-anticipated quarter for tablets and 2-in-1s.”

Market Realist recently published a series on Apple called Apple is expected to introduce some attractive features in the iPhone 6, where we discussed how Apple’s plans to introduce a larger-screen iPhone 6 could end up cannibalizing the sales of its own iPad mini.

We discussed how since Apple may launch the iPhone 6 in two sizes, 4.7 inches and 5.5 inches, the 5.5-inch iPhone 6 will meet most of the needs of a smaller tablet and so could compromise on the sales of the 7.9-inch iPad mini. The same argument holds for Microsoft not launching a smaller tablet and going with a larger-screen tablet instead.

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