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On July 20th, I introduced the Xbox Surface to Seeking Alpha and the Comments section erupted. Some were excited, others condemned the revelation as pure speculation on my part, while still others thought Microsoft (NASDAQ:MSFT) was hearkening back to the bad old days of FUD & vaporware. Today I have a few updates for you.

Let's begin with the Surface itself.

Número Uno: It's not vaporware. Much to the chagrin of Acer's chairman and CEO JT Wang (OTC:ASIYF), Microsoft is already working on the next iteration of the Surface tablet (which will be manufactured by Taiwanese electronics giant Pegatron, whose resume includes the iPhone and the iPad) according to the company's Career center. In fact, Microsoft has added 13 new openings since the June 18th reveal.

All of the job listings begin with the same rousing call to arms:

Are you passionate about building cool devices and technologies? The Surface Team focuses on building devices that fully express the Windows vision. A fundamental part of our strategy is having desirable and powerful devices that enable the experiences people want, and elicit their excitement. Creating these devices involves a close partnership between hardware and software engineers, designers, and manufacturing. We are currently building the next generation and Surface needs you!

As TechRadar points out,

The scope of the jobs Microsoft is recruiting for shows that this isn't just keeping Surface up to date with future processor improvements.

-meaning, Surface 2.0 is already in the works. That's going to be just what the doctor ordered for Microsoft's bottom line, as tablets are set to overtake laptops by 2017, "a compound annual growth rate of 28%."

Número Dos: Yes, it involves Xbox. (The Xbox720, to be exact.)

Know how I know? I know because Microsoft filed a patent on it two years ago, which has only very recently been published by the U.S. Patent Office. The Surface will be configurable as either a tablet or a virtual remote control for Xbox 720.

In the embodiment illustrated in patent FIG. 1 the virtual controller implements a Microsoft Xbox virtual controller.

There you have it.

Microsoft isn't just limiting Xbox 720 integration to MS Surface. The patent further states that the computing device may be configured as a mobile telephone, tablet computer, or "other computing device."

Here's what it looks like (drawing not to scale for the MS Surface)

Figure 2 gives the functional flow chart:

While Figures 3-5 illustrates the movement schemata:

Número tres: The conclusion of my original post contained a caveat - Apple (NASDAQ:AAPL) isn't going to stand idly by a second time and watch Microsoft repeat the stunning hardware success it had with XBox. Like Darth Vader in Star Wars, Cupertino will strike back.

What's up with that? (Translation: What does Apple plan to come up with next?) Plenty. In fact, the 2013 iPhone is on track to introduce so many game changing features that I'm taking a pass on the iPhone 5. That's another article, though. More important for 2012 is what Cupertino won't do. It won't make hybrid devices.

Conclusion

Due to the outrage of the OEMs, the next year looks to be one of two things. It's either going to be the year Microsoft CEO Steve Ballmer finally matches the breakout performance of his old boss, Bill, or its going to be Steve's last stand at the Alamo. The Big B needs a Hail Mary win after the 6.2 billion dollar writedown of aQuantative.

Apple, Inc is now bigger than Microsoft and Intel (NASDAQ:INTC) combined. Apple is bigger than drugs. Microsoft has decided to fight back by combining its most popular product (XBox) with its most successful product (Windows, Office) with its newest product (Surface). If that combination fails, there's not going to be a lot of other places left for Microsoft to go. It's sink or swim.

Source: Introducing The XBox Surface Part 2 (Patent Office Edition)