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PC brands warned of Surface competition

TAIPEI--Microsoft Corp.'s Surface tablet, which runs on the Windows RT operating system, is expected to create pressure on PC brands as they will have to pay additional license fees for its usage, U.S. brokerage Morgan Stanley said recently in a report.

Microsoft announced on Oct. 16 that the price of its Surface RT, which uses chipsets licensed by British chip designer ARM Holdings PLC, will start at US$499 for a 32GB version, which is similar to the entry price of Apple Inc.'s new iPad, which starts with a 16GB storage capacity.

It remains to be seen whether tablet PCs using the Windows 8 operating system will steal a meaningful share from Apple. PC brands might also struggle to match Surface RT's pricing in the near-term due to the royalty fees involved, Morgan Stanley said.

“Surface's pricing that starts from US$499 should create some pressure on PC brands as they have to pay an additional US$90 to US$100 in Windows RT licensing fees on top of the hardware, which costs about US$300,” Morgan Stanley analyst Jasmine Lu said.

This also implies other makers of Windows RT tablets, such as South Korea's Samsung Electronics Co., Taiwan's Asustek Computer Inc. and China's Lenovo Group, would price their models more expensively than the Surface RT at US$550 to US$599, she added.

Moreover, Lu said she believed the tablet PC take-off would increase PC brand's challenges and accelerate the market share consolidation of Lenovo and Asustek, which are major players in the shrinking PC market.

On the supply side, Morgan Stanley viewed Taiwanese contract notebook maker Pegatron Corp. as the key beneficiary because it is the sole assembler of Surface tablets.

Surface tablet shipments were forecast to touch 3 million units in the fourth quarter of 2012 and 9 million units for the whole of 2013, the U.S. brokerage said.

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