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Microsoft to Launch Surface Buds: Should AAPL & Others Worry?

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Microsoft (MSFT - Free Report) is set to expand the Surface family with the latest line of Earbuds—Morrison — per a Thurrott report. This move is believed to be the company’s attempt to compete with Apple (AAPL - Free Report) that dominates the wireless headphones and earphones market with AirPod.

Per the report, Microsoft will roll out the new series of Surface Earbuds or ‘Surface Buds’ later this year. This is expected to enable the company in tapping substantial market share during the Christmas and holiday shopping season.

The latest development holds promise as the global market for headphones and earphones is booming. Per a report from Research and Markets, the market is expected to hit $36 billion by 2024 at a CAGR of 13% between 2018 and 2024.

Immense growth prospects keep attracting major tech players into the space. Microsoft, with its latest initiative, joins Amazon (AMZN - Free Report) . Per a Bloomberg report, Amazon is planning to launch its first ever headphone in the second half of the year.

Meanwhile, Samsung (SSNLF - Free Report) introduced Galaxy Buds in March, 2019.

How Will Microsoft Take the Fight to Apple?

Well, this is not the first time when Microsoft has tried to challenge Apple’s dominance in the hardware domain.

Notably, Microsoft’s Surface Studio desktop, Surface Pro, Surface Laptop and Surface Go tablet compete with Apple’s devices that include Macbook Air, Macbook Pro and budget iPads.

Moreover, Microsoft launched Surface Headphones around holiday season of 2018. These smart wireless earphones are integrated with Cortana and have noise-canceling feature. The upcoming Surface Earbuds are expected to have similar credentials.

Similar to Apple’s AirPod, which incorporates Siri, Microsoft is striving to capitalize on the growing demand for virtual assistants that make day-to-day tasks easier and faster. However, it is uncertain whether the Surface Earbuds will have a charging case like AirPods.

Microsoft is strengthening almost all its services, hardware and software on the back of advanced AI and machine learning (ML) capabilities. Per Thurrott, the tech giant is working to “improve interactions between a phone and the earbuds to make reading content easier on the phone.”

 

We believe that the new product will enable the company to gain market share and incremental revenues will bolster the top line. Notably, Microsoft’s Surface revenues surged 39% (41% at cc) in the second quarter of fiscal 2019 on a year-over-year basis. The upside can be attributed to strong adoption of the latest editions.

However, it is difficult to ignore the fact that Apple enjoys the first mover advantage in the smart headphones market with AirPod. Per Counterpoint Research's data, Apple had a 60% hold in the ‘true wireless hearables’ market in fourth-quarter 2018.

Notably, Apple launched the first version of AirPods in 2016. Recently, the company unveiled the second generation of AirPod, which directly responds to ‘Hey Siri’ without any hand gesture.

Apple Inc. Revenue (TTM)

 

Apple Inc. Revenue (TTM) | Apple Inc. Quote

 

How Other Players are Placed?

The competition in headphone market has become intense with the emergence of virtual assistants.

Alphabet’s (GOOGL - Free Report) Google has forayed into the smart headphone market with Pixel Buds that are Bluetooth earphones and equipped with Google Assistant. Users need to tap their Pixel Bud to check news, weather or to listen to music. Further, Samsung’s Galaxy Buds enable users to access Google’s voice assistant.

Alphabet Inc. Revenue (TTM)

 

Alphabet Inc. Revenue (TTM) | Alphabet Inc. Quote

 

Wrapping Up

We believe that Microsoft’s and Amazon’s entry in the smart headphone market will be welcomed by consumers as it likely to challenge existing pricing parameters.

Moreover, the motivation to innovate heightens with more competition, which bodes well for the industry.

Currently, Microsoft, Apple and Alphabet carry a Zacks Rank #3 (Hold). Meanwhile, Amazon carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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