Microsoft Takes Another Shot At Apple

| About: Microsoft Corporation (MSFT)


Microsoft offering huge deal for MacBook Air trade-in.

Company will give up to $650 credit for Surface Pro 3.

Sales are key, but this could ding profits.

Seems like a necessary move for Microsoft.

Microsoft (NASDAQ:MSFT) launched the Surface Pro 3 about a month ago, and the company is certainly making a large effort to drive sales of the hybrid tablet/laptop device. Recently, the company has announced a trade-in program that takes a direct shot at Apple (NASDAQ:AAPL). Today, I'll discuss the program and why it seems like a logical move for Microsoft.

I was reading up on some Microsoft stuff and I noticed how StreetInsider had an article on Surface Pro 3 / MacBook Air trade-in program. This got me curious since I follow both names on this site, obviously focusing on Apple a bit more. Microsoft is in fact offering up to $650 of in-store credit when you trade in select MacBook Air models and purchase a Surface Pro 3. This is an in-store offer only, and all details can be seen here. According to the Microsoft website, the offer runs from 6/20 until 7/31.

This is an interesting move because Microsoft is not trying to move you from one of its devices to another. This is not a trade in where you trade in an older Surface model for a new one. Microsoft is specifically trying to get you ditch an Apple product. If you were trading in an older Surface model, Microsoft could potentially refurbish it and sell it. I don't think the company will be doing that with MacBook Air trade-ins.

Microsoft is certainly trying to poach some of the Apple crowd here. Remember, Microsoft's revenues are running at about half that of Apple currently. So for every tablet/laptop sale that Microsoft gets, it is much more meaningful to Microsoft than one sale would be for Apple. Additionally, if you believe in the ecosystem battle, stealing someone away from the Apple ecosystem could ding iPad and iPhone sales. Microsoft may be able to shift some of those people to cheaper Windows tablets and maybe even a few Windows phones.

The real question here, one that I cannot answer at this time, is how profitable can Microsoft be in this endeavor? The Surface Pro 3 starts at $799, although it can get much more expensive than that. A $650 credit could eliminate a huge chunk of revenues, but this might be the aggressive move Microsoft needs to really bolster Surface Pro 3 sales.

There is one other name that has to be brought up here, and that is Intel (NASDAQ:INTC). The Surface Pro 3 contains Intel's Core i3, i5, and i7 processors, depending on the model bought. Intel recently raised its quarterly and yearly guidance thanks to better than expected corporate PC spending. Microsoft has ended support for Windows XP, and that seems to be fueling a big refresh for corporations. We'll see how consumers are impacted as time goes on. While the Surface has not been an iPad killer, it has carved out a niche among business users. I should also note that Intel's Core i5 and i7 are in the MacBook Air. Microsoft should benefit from this corporate refresh, and that's why I am expecting a decent dividend raise this year.

In the end, Microsoft is taking another shot at Apple. Microsoft will give you a sizable trade-in credit if you ditch the MacBook Air and buy a Surface Pro 3. While this may be an expensive way to drive sales of the newly launched device, it seems like a necessary move for Microsoft. It will be interesting to see how Surface and MacBook Air sales fare throughout the rest of 2014.

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