Microsoft Becomes 'Frenemy' to PC Partners

In this June 18, 2012, file photo, Microsoft Corp.'s new Surface tablet computer is displayed at Hollywood's Milk Studios in Los Angeles.
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Dell Inc., the second largest PC maker in the U.S., also believes Surface will spur more interest in Windows 8, says Bill Gordon, the company's executive director for end user computing.

"We think Microsoft is trying to build the market, so we think it's great," Gordon says. "They are just trying to generate more excitement. Google did its own devices for Android, so I think it's kind of the same thing."

To warrant prices on par with the latest iPad, which also starts at $499, Microsoft needs to prove that the Surface is a more powerful tool. Early demonstrations suggest that Surface and other Windows tablets could be of interest to large corporations, many of which have created internal software that operates on the Windows platform, says Rhoda Alexander, an analyst with market research company IHS iSuppli.

"They're looking for a secure tablet solution that will support legacy operations," she says.

IHS sees worldwide tablet sales exploding in the next few years from 19.9 million units sold in 2010 to 386 million in 2016.

This year, Apple's iPad is the dominant player, with 62 percent of the market, compared with 34 percent for tablets using Android and 3 percent for tablets that run on an older Windows operating system.

But Windows' share is expected to blossom. According to IHS, by 2016, its tablets will have nearly caught Android, with a 24 percent share compared with Android's 29 percent. It predicts Apple will still command nearly half, or 47 percent, of the tablet market.

Whatever the potential downsides to Microsoft, its entry into tablets is seen as crucial because the PC market is expected to decline this year for the first time since 2001.

"The worst thing that can happen is stagnation in the market," Nomura analyst Rick Sherlund says. "At least (Microsoft is) getting in the game now."

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AP Technology Writer Michael Liedtke in San Francisco contributed to this report.

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