Microsoft's (MSFT) plan to take on Apple's (AAPL) iconic iPad finally surfaced on Monday.
The arrival of Surface -- the name of Microsoft's upcoming Windows-based tablet -- will naturally be met with a lot of skepticism. Despite the company's success in software and video game consoles, it has done poorly when trying to play catch up with Apple in the past.
The Zune was no iPod. Last year's commitment giving Nokia (NOK) billions in support in return for the handset maker's championing of Microsoft's fledgling mobile operating system has yet to result in any serious inroads against Apple's iPhone.
Why should Microsoft fare any better with tablets?
Well, there are plenty of reasons to take the world's largest software company seriously in its push to make Surface a mainstream device, and not just because it's taking a big gamble by breaking from tradition and putting out the computing hardware on its own. Here are some reasons to get excited.
1. Microsoft's going bigger
Early tablet makers tried to match the iPad's screen size of 9.7 inches, but the push to beat Apple on price eventually found companies saving money by thinking smaller.
Amazon's (AMZN) Kindle, Barnes & Noble's (BKS) Nook, and Research In Motion's (RIMM) PlayBook have all settled on 7-inch touchscreens.
Surface is going with a larger 10.6-inch screen. The end result is a tablet that may be larger in terms of lugging around, but it should provide a better device to consume video. The fact that the Surface features a kickstand -- allowing it to stand up like a photo frame -- makes this a device that folks can simply place on a desk or table and enjoy.
2. Surface is coming in two flavors
Microsoft watchers weren't sure what they would be getting ahead of Monday afternoon's rollout. Would they be getting a simplified tablet or a high-end computing device? Well, buyers will have a choice.
The first Surface that will hit the market in a few months will be fueled by the stripped down Windows RT version of Microsoft's new operating system and will use the same ARM-based processor architecture as many of popular tablets already on the market. A few months later, the company will introduce a beefier model using Intel (INTC) chips and running Windows 8 Pro.
Aiming for both ends of the market matters.
3. Two words: Flash and Office
Apple's iOS doesn't support Flash, something that has helped Android gain a foothold with visitors of sites using the popular video platform. Surface will support Flash.
As a Windows-powered device, Surface will also play nice with the undisputed champ among productivity suites: Microsoft Office. There may be Android and iOS apps that indirectly work with Office files, but this is the real McCoy.
4. Microsoft has friends in high places
It's pretty convenient that Netflix (NFLX) CEO Reed Hastings sits on Microsoft's board of directors. That relationship may have been instrumental in granting the Xbox 360 a year of streaming exclusivity before Netflix became available on the rival PS3 and Wii consoles.
It wasn't a surprise to hear on Monday that Netflix will stream on Surface.
5. Microsoft isn't afraid to spend money to make money
Microsoft reportedly sells the Xbox at a loss, knowing that it can make it back in software and digital goodies. Its move to spend billions in support of Nokia's Lumia initiative is another example of Microsoft willing to take a near-term hit for the potential of long-term reward.
Microsoft Surface: 5 Reasons to Pay Attention to This iPad Challenger
Revenues (millions): $102,939.0
CEO: Vikram Pandit
Citi (C) chief Vikram Pandit navigated the company through another rocky year for the beleaguered banking industry. The company made solid progress, boosting profits to $11 billion, up 4.4% from the previous year, and reached benchmarks it had set for itself in its consumer businesses. In April, shareholders handed Pandit an embarrassing no confidence vote. About 55% of shareholders rejected a plan to pay him $15 million, though the vote was non-binding.
Revenues (millions): $106,916.0
CEO: Virginia M. Rometty
In one of the most watched transfer of corporate leadership in modern history, IBM's (IBM) top job went from Sam Palmisano to veteran IBMer Ginni Rometty on the first of the year. The transition capped off one of the company's best years ever, with sales topping $100 billion in 2011. IBM also managed to capture popular culture's attention thanks to Watson, its artificial intelligence program which played Jeopardy! Better yet, Watson beat champions Ken Jennings and Brad Rutter. Banner year indeed.
Revenues (millions): $107,750.0
CEO: Larry J. Merlo
Sales topped $100 billion at the pharmacy giant, but it also faces challenges. The $29.1 billion merger of Express and Medco knocked CVS (CVS) off its perch as the largest pharmacy benefits operator. It remains to be seen how the company will cope with such robust new competition.
Revenues (millions): $108,249.0
CEO: Timothy D. Cook
The company emerged from the tragic passing of co-founder Steve Jobs saddened but in no perceptible way weakened. Under CEO Tim Cook, the company continued pumping out new products -- like a significantly upgraded version of the iPad tablet. Apple (AAPL) nearly doubles its earnings per share in 2011, compared to 2010. That helped nudge management to announce plans for the firm's first dividend since 1995, returning some of the $97.6 billion in cash it had accumulated. Apple fans and analysts alike also continue to await a long-rumored television set from the gadget maker.
Revenues (millions): $110,838.0
CEO: James Dimon
JP Morgan (JPM) CEO Jamie Dimon doesn't let a little thing like Dodd-Frank get in his way. Dimon called his firm's 2011 performance "mildly disappointing" after it struggled to find ways to make up for lost revenue from new bank regulations and revenues fell sharply in its investment banking unit. But about six weeks after that year-end report, Dimon closed out a shareholder meeting on a decidedly optimistic note: "I'll be damned if we don't have record profits at least for a while now."
So far, it seems to be playing out just as he predicted. Profits weren't at record levels earlier this year, but they were much higher than analysts predicted. And revenues grew by 24% in the first quarter, thanks to increased activity in retail banking, home refinance loans, and overall customer deposits.
Revenues (millions): $110,875.0
CEO: Lowell C. McAdam
The second-largest U.S. telecommunications group saw profits buoyed by surging smartphone sales, but its success last year -- including a $10 billion payment to Vodafone, which co-owns Verizon Wireless -- raised hackles with union members. In October, it briefly joined the Occupy Wall Street movement to protest benefit cuts after Verizon (VZ) announced its profits had doubled from the previous quarter.
Revenues (millions): $112,084.0
CEO: John H. Hammergren
The nation's largest health-care provider continued to dominate, growing 2011 sales to more than $112 billion. Distribution remains McKesson's (MCK) backbone: A full one-third of all medicines used in the U.S. run through its pipeline. The company also is the dominant player in health care information systems. More than 70% of the nation's big market hospitals use its technology to digitize prescriptions and patient medical records.
Revenues (millions): $115,074.0
CEO: Brian T. Moynihan
Bank of America (BAC) executives may well remember 2011 as the year of the $5 debit fee. To make up for lost revenue due to new bank regulations, the Charlotte, N.C.-based bank instituted a $5 monthly fee for customers using debit cards. The move sparked a consumer revolt, even as other banks followed suit. Just about a month later, BofA succumbed to the pressure and backed off its new fees.
BofA shares took a nosedive in 2011, down 60%, before rebounding earlier this year. The bank still faces a litany of lawsuits, mostly relating to mortgages at its Countrywide business unit. In September the company announced plans to eliminate 30,000 jobs, or 10% of its workforce. So far the cost-cutting seems to be helping -- in the second quarter of this year, Bank of America reported that net income more than doubled from the same period last year.
Revenues (millions): $125,095.0
CEO: William R. Klesse
Thanks to higher oil prices, Valero (VLO), the nation's largest oil refiner, has been on the move. Its $730 million purchase of Chevron's Welsh refining operations helped increase its oil output. And, the company stepped up production at a number of its U.S. refineries, a big reason why analysts anticipate double-digit earnings growth in the years ahead.
Revenues (millions): $126,723.0
CEO: Randall L. Stephenson
Having taken a lot of heat about the quality of its wireless network last year, AT&T (T) agreed to pay $39 billion for T-Mobile USA -- a smaller rival that once ran ads ridiculing its service. The combined entity -- which would have allowed AT&T to spread the cost of running a national network over an additional 34 million customers -- didn't manage to pass muster with the government. Now, the company is picking up the pieces -- which includes paying T-Mobile $3 billion in cash as well as access to $1 billion worth of AT&T-held wireless spectrum as per the original acquisition agreement.
Revenues (millions): $127,245.0
CEO: Margaret C. Whitman
The world's largest computer manufacturer had another shaky year. The company's board ousted CEO Leo Apotheker after barely a year on the job. The troubled technology giant offered the top spot to former eBay boss Meg Whitman. (She had been an HP director as well as a strategic advisor at Kleiner Perkins.)
The move came at a pivotal time for HP (HPQ), which is still struggling to find a path forward. In her first decisive step, Whitman announced the company would combine two of its biggest divisions, printers and PCs. Whitman is beginning her tenure with a number of other strategic consolidations across business units as well.
Revenues (millions): $136,264.0
CEO: Alan R. Mulally
Alan Mulally, Ford's (F) chief, is credited with gracefully navigating the American icon through one of the most disastrous periods in the U.S. auto industry's history. The former Boeing executive's most important leadership achievement took place when Ford avoided bankruptcy, the tarnishing fate that befell rivals General Motors and Chrysler in 2009. Had Ford been forced to file, the Ford family almost certainly would have lost their controlling interest. The company's stock has resumed paying a dividend during Mullaly's tenure and, more importantly, the firm is pumping out lust-worthy cars again. Profits jumped 208% last year -- growth in league with the world's oil and tech giants, not other car makers.
Revenues (millions): $137,451.0
CEO: Michael J. Williams
Last year, Fannie Mae (FNM-PK) catapulted from No. 81 on the Fortune 500 to No. 5, thanks to new accounting rules. On this year's list, the government-controlled mortgage giant slipped to No. 8 after revenues fell by more than 10% to $137.5 billion. Losses for the year grew to $16.9 billion from $14 billion in 2010.
Fannie Mae continues to be dragged down by its portfolio of loans dating back to the pre-housing crash heyday. The lender has borrowed $116 billion from the government so far, and at the end of last year it sought an additional $4.6 billion to help cover its operating losses. It's difficult to see a turnaround on the horizon.
Revenues (millions): $143,688.0
CEO: Warren E. Buffett
Berkshire Hathaway (BRK-B) had its share of setbacks in 2011, but CEO Warren Buffett was still able to say that his company's book value growth handily outperformed the S&P 500. It was the 39th year he was able to make such a claim. Berkshire shareholders, on the other hand, underperformed the broader market in 2011 with their investment in the Omaha, Nebraska-based holding company.
Earnings fell by 20.9% at Berkshire in 2011, thanks in part to high catastrophe losses in its insurance business and continued sluggishness in its housing-related businesses. Total revenues rose by 5.5% to $143.7 billion. Buffett called out five businesses for their particularly strong performance, which he expects will continue to post profit growth in 2012: BNSF, Iscar, Lubrizol, Marmon Group, and MidAmerican Energy.
Revenues (millions): $147,616.0
CEO: Jeffrey R. Immelt
General Electric (GE) managed to post strong earnings growth in 2011, despite a slight drop in revenues. Earnings rose 21% to $14.2 billion, while sales fell 2.6% to $147.6 billion. Despite that dip in sales, GE CEO Jeffrey Immelt said the company's performance at the end of the year bodes well for 2012, as orders picked up in businesses ranging from energy infrastructure to health care.
Analysts remain focused on GE's industrial division, which has struggled to grow since the economy fell into recession. The company reported a record backlog of orders at the end of the year -- $200 billion, up from $191 billion. Immelt says that gives GE a strong start to its goal of growing industrial earnings by 10%.
Revenues (millions): $150,276.0
CEO: Daniel F. Akerson
Detroit has staged a comeback, and so has General Motors (GM). The auto giant jumped three spots in the Fortune 500, from No. 8 in 2010 to No. 5 last year. Just two years after it filed for bankruptcy and received federal aid, GM posted record profits in 2011. It earned $9.2 billion, up a whopping 49% from 2010, while revenues rose 11% to $150.3 billion. GM also reclaimed its title as global sales leader after Toyota nabbed it from GM in 2008.
No one should be more pleased by those numbers than GM union workers, who negotiated a profit-sharing program as part of the company's reorganization. About 47,500 workers received checks averaging $7,000, up from $4,300 in 2010.
Revenues (millions): $237,272.0
CEO: Ryan M. Lance
Big Oil may be getting a little smaller. ConocoPhillips (COP) surprised many on Wall Street last year when it announced plans to break up into two publicly traded companies, one focused on exploration and production and another on refineries and marketing, called Phillips 66. The spin-off happened on April 30. Conoco officials hope the break-up will help it compete better internationally and unlock value by attracting more investors.
This Fortune 500 list was based on 2011 results, so the new changes for ConocoPhillips shareholders aren't reflected here. If they were, we'd see Phillips 66 in the No. 4 spot instead of the parent company, ConocoPhillips. The spin-off represents about 80% of the original company's total 2011 revenue -- that still puts it ahead of the next company on this list, General Motors.
Revenues (millions): $245,621.0
CEO: John S. Watson
Chevron (CVX) ended 2011 on a sour note: Despite rising oil prices, the company posted its biggest profit decline in two years, largely due to losses at its U.S. refinery business. Still, the second-largest oil and gas company in the U.S. managed to post a 25% increase in revenues during the full year, to $245.6 billion, and an impressive 41% jump in profits, to $26.9 billion. Chevron is spending heavily on oil and gas projects in places like Australia, Africa, and the Gulf of Mexico -- projects that are expected to start paying off in 2014.
Chevron also continues to keep its lawyers gainfully employed. In addition to multiple ongoing legal battles, including a longstanding one in Ecuador, Chevron is now fighting an $11 billion suit brought against it for an oil spill late last year in Brazil. It's also still cleaning up after a natural gas rig in Nigeria exploded earlier this year.
Revenues (millions): $446,950.0
CEO: Michael T. Duke
Wal-Mart (WMT) slipped to No. 2 in the Fortune 500 in 2011 after holding onto the top spot for two years in a row. The retailer was forced to aggressively cut prices to reverse its declining same store sales in the U.S. That helped push revenues up by 6% during 2011, to $447 billion, but it hurt Wal-Mart's bottom line -- profits declined by 4.6% during the year, to $15.7 billion.
The world's largest retailer has struggled to maintain growth at its U.S. stores, even as the economy has shown signs of recovery. Although the unemployment rate has fallen, the housing market remains unstable and consumer spending hasn't reflected a new attitude for many Americans.
Wal-Mart's international business continues to be a source of growth for the company -- revenues outside the U.S. rose by 13.1% last year, to $35.5 billion. But one key growth market for Wal-Mart, Mexico, recently hit a major roadblock after a sweeping New York Times story reported bribery allegations by the retailer there.
Revenues (millions): $452,926.0
CEO: Rex W. Tillerson
It's tough to beat the kind of year Exxon Mobil (XOM) had in 2011. Shares rose by 20% and profits surged by 35% to $41.1 billion. Revenues jumped 28% to $452.9 billion, helping Exxon reclaim the top spot in the Fortune 500.
Exxon has certainly benefited from rising oil prices, particularly during the last quarter of 2011. But the company has also positioned itself well to capitalize on the latest controversial trend in domestic energy production: Fracking. Exxon now produces just about as much gas as it does oil, thanks to its $35 billion purchase of XTO Energy in 2010. As CEO Rex Tillerson told Fortune recently, with world demand for energy expected to rise considerably during the coming decades, the shale gas party has just begun.
Microsoft didn't reveal pricing information on either Surface model this week, but it would be a surprise if the company is aiming for Apple-sized profit margins. Microsoft knows that it has to sacrifice margins to hit a price point that's compelling to mainstream audiences. It will also need to shell out big bucks to top developers to make sure that they're porting over the hottest iOS and Android downloads for Surface.
Microsoft's not going to bow out quietly here. It knows that it has too much at stake as tablets and smartphones are eating into the traditional PC market.
Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Netflix. The Motley Fool owns shares of Apple, Microsoft, Intel, Amazon.com, and Netflix. Motley Fool newsletter services have recommended buying shares of Intel, Amazon.com, Apple, Microsoft, and Netflix; writing puts on Barnes & Noble; and creating bull call spread positions in Microsoft and Apple.