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Scratch the Surface: Microsoft Should Exit Hardware

So it also came as no surprise Sunday when the software giant went back to the cutting board -- this time slashing the price of the its Surface Pro tablet by $100 from $899 to $799. Here again, I don't believe that this will be enough to get shoppers to switch, especially since at $799, there are comparable laptops/hybrids that come as compelling alternatives for much less. And even if someone insisted on a tablet, both Google's Nexus tablet and Apple's iPad still come off as more cost-effective.

There is a lot of speculation as to why Microsoft has begun to reduce its prices. The most popular idea is that the company is gearing up to launch its new generation of Surface tablets, which are rumored to run on Intel's (INTC) new Haswell processors. I have two issues with that. First, I don't believe that anyone is going to care about a new Surface tablet. The Street never bought into the hype with the current iteration. And for that matter, and perhaps more importantly, consumers never bought it either.

Second, Microsoft's management, in particular CEO Steve Ballmer, has never been able to effectively answer, "What's next?" As noted, the company brings in tons of cash. But the company's track record does not show that Microsoft knows how to effectively deploy that cash to grow. A perfect example is that the company was forced to eat $900 million on the Surface RT due to unsold inventory.

If that doesn't raise an eyebrow, consider that the entire Surface business only generated $853 million in revenue for Microsoft, essentially 5% less than $900 million writedown. If that is not an example of cash-flow mismanagement, I don't know what is.

And the idea that the company insists on prolonging its hardware futility with another iteration of Surface is beyond comprehension. Management can now say that it has "dabbled" in hardware. We've seen the results. It hasn't worked. It won't work. And now it's time to kill it.

At the time of publication, the author held shares of AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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