How to Trade a $200 Microsoft Surface Tablet

Microsoft

shocked the world earlier this year when it unveiled its Surface tablet. The 10-inch tablet will come loaded with Microsoft's new Windows 8 operating system, and is likely to compete directly with Apple's

iPad. Perhaps most interesting is that the Surface will be manufactured directly by Microsoft. This is unusual for the company, which built its business around creating operating systems and having a variety of partners like Dell

and Hewlett-Packard

manufacture the actual PCs. While it is yet unknown how much Microsoft will charge for the device, it was thought to be comparable to the $500 Apple charges for its newest iPad -- that is, until last week.

suggesting that the Surface could come in

. At that price, the Surface would be competing directly with cheaper competitors in the tablet world like Google's

Nexus 7 and Amazon's

Kindle Fire. However, the Surface would have a much larger screen than either one of those devices, and may sport better internal hardware. The biggest hurdle to the $200 price point is the manufacturing cost: if Microsoft were to sell its Surface tablets at $200, it is likely that it would be selling the tablets at a loss. Of course, Microsoft has engaged in such a strategy before. When Microsoft entered the video game industry just after the turn of the millenium, it sold every Xbox gaming console at a loss. While Microsoft initially took a large cash hit, the strategy ultimately paid off: Microsoft was able to reap billions in profits when its follow-up Xbox 360 became a staple consumer entertainment device. Although Apple and Google have dominated the mobile OS business, Microsoft could springboard back into the discussion by following an aggressive pricing strategy. And, with billions sitting on its balance sheet, Microsoft certainly has the cash hoard to do it. However, unlike the video game industry, an aggressive entrance into the tablet manufacturing business may have disastrous consequences for Microsoft's partners. Acer's CEO has already expressed his displeasure with Microsoft entering the space. Microsoft's OEM partners simply don't have the cash reserves Microsoft has, and so they would likely be unable to compete with a $200 surface. Thus, traders who anticipate a cheap Surface may wish to take short bets against some of the PC manufacturers. Recently, famed short seller Jim Chanos revealed that he had bet against HP based on the rising popularity of tablets. HP may have been able to produce a decent Windows 8 tablet of its own, but if Microsoft completely squeezes them out of the space, Chanos' thesis may prove deadly accurate. Of course, such an aggressive strategy would be likely to cause a variety of shifts in the tech sector. Companies as diverse as Barnes & Noble

, Research in Motion

and AMD

could be affected. The Barnes & Noble part of the story is perhaps the most interesting. In recent years, Barnes & Noble has shifted into the technical realm by introducing its own lineup of digital e-readers under the Nook brand. Barnes & Noble's Nooks are fairly cheap devices, and an inexpensive Surface would likely pressure the low-priced Nooks. However, Microsoft recently invested $300 million into Barnes & Noble's Nook division, thereby creating a tremendous internal conflict: by destroying the Nook, Microsoft would only be weakening the value of its investment. Still, the full details of Microsoft's intentions with regards to the Nook investment remain unknown -- Microsoft may have simply made the move in an effort to gain exposure to Barnes & Noble's digital content business, rather than its hardware base. RIM could also see some action, although not as directly as Barnes & Noble. Most investors have long written off RIM as a doomed business, tied to a BlackBerry device that has been surpassed by Apple's iPhone and Google's Android. However, despite its precarious situation, RIM's management has pushed on, promising to deliver a powerful BlackBerry 10 OS that the company would be open to leasing out. Yet, investors may have asked: who would want to lease out such an OS? If Microsoft sells a $200 surface, the answer might be surprising. Companies like Dell may have been banking on Windows 8 as the cornerstone of their tablet strategy. With a $200 surface potentially burning that bridge, they may want to look elsewhere: enter BlackBerry 10. Admittedly, with Google's Android still freely available, it is a long shot. But if Windows 8 declines in popularity among the OEMs, there may room for BlackBerry 10 after all. AMD, as a chip manufacturer, would also likely be affected. Thus far, AMD has yet to create a mobile chip like Qualcomm

or NVIDIA

. Still, AMD has persisted with its lineup of chips for desktop and laptop PCs.