Should Apple Fear Microsoft's Coming Tablet Assault?

NEW YORK ( TheStreet) -- How can you make $1 billion selling tablets? Start out with $2 billion and compete against Apple ( AAPL). iPad victims to date include computer heavyweight Hewlett-Packard ( HPQ), and BlackBerry maker Research In Motion ( RIMM). Apple entirely dominates the tablet market with more than six out of 10 tablets displaying the Apple logo.


Microsoft ( MSFT) appears ready to step up to the plate to see if they have what it takes to go against Apple in the tablet-space war. Microsoft will need to put everything they have into it, including a few Windows 3.11 machines back in the shed.

Both Hewlett-Packard and RIM were forced to write down hundreds of millions of dollars in inventory. Unfortunately for RIM, the write-downs in inventory may not be over. After RIM's CEO Thorsten Heins recent earnings warning, expect continued depreciation. (Read my article Will Apple's Shot at Google Hit RIM and Nokia Instead?)

Based on last quarter's earnings release, Dell ( DELL) hasn't fared much better. Michael Dell and the Texas crew will have to sit on the bench and wait to take another swing at Apple's tablet Juggernaut. Microsoft's highly anticipated Windows 8 is due for release soon and is Dell's best chance at cracking the market.

Google's ( GOOG) Android open source platform, has presented the only real challenge to a complete and total domination by iPad. It's difficult to gauge the benefits to Google as Android is open source and free. Because Android is developed by Google and subsequently provided to vendors for free, Google must rely on secondary sources of income like advertising and app sales. Apple on the other hand, generates profit producing revenue from iPad sales as well as secondary sales, including apps.

Microsoft, obviously tiring of vendors' inability to significantly penetrate tablet shares, reportedly has decided if you want it done correctly, you have to do it yourself. The tech world can't be surprised considering how quickly tablet sales are taking over the computing space.

Can Microsoft's significant shift from strictly software production into an integrated product solution provider work? Apple has successfully managed to keep both sides of the seesaw balanced; however, they do it on a much larger scale than Microsoft is contemplating. Remember, Hewlett-Packard and RIM with near-unlimited resources have failed miserably and embarrassingly.

If Microsoft is successful in the tablet space, then what? Microsoft will be competing directly with Microsoft's customers as much Apple and Google; maybe more. We have heard this song before with Microsoft's Zune, and it didn't help the bottom line.

Alienating struggling customers comes at a cost and without strong revenue and margins, may result in a serious embarrassment for the Seattle company. The challenge of convincing new manufacturers to support Windows, and invest R&D dollars into the platform is likely to increase too. The concept appears full of peril with a heads-I-break-even-tails-I-lose type of outcome.

Dell, once an Intel-CPU-only computer producer, made news in 2006, when it shifted production to include AMD chips. It would not be surprising to see Dell hedge its market position with Android-platform tablets.

Even if Dell doesn't, other smaller hardware manufacturers are certain to consider the costs and benefits of using Windows 8 in a world that Microsoft is competing in.

A tighter integration with hardware and software may have its benefits, but I believe Microsoft should continue working on its core competency and leave hardware research and development to proven hardware manufacturers.

If Microsoft does enter the tablet hardware space, expect another press release in about two years announcing the sale or discontinuation of the program. Fortunately, Microsoft is smart enough to not bet the farm, and I remain a strong bull in its stock.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, the author held no positions in any of the stocks mentioned.