MSFT Microsoft Corporation

By Jay Greene 

Microsoft Corp. is expanding its hardware portfolio to challenge Apple Inc.'s iMac with a new 28-inch touch-screen personal computer called Surface Studio.

The software giant, which for years relied on hardware makers to come up with PCs that run its Windows operating system, unveiled the device at a Wednesday morning event in New York.

Like the iMac, the new model weds a video monitor and processing unit, a design generally known as all-in-one. Microsoft, which also announced an update called Windows 10 Creators Update, said the new PC is intended to help users create all sorts of media content, from three-dimensional dioramas to pictures drawn with a stylus on the screen.

"I believe that the next 10 years will be defined by technology that empowers profound creation," reversing the past decade's trend toward devices that focus on consuming media such as music and video, said Microsoft CEO Satya Nadella. "We are the company that stands for the builders, the makers, the creators."

The Surface Studio's screen rests on two chrome arms that connect to the processing unit, with a separate keyboard. The screen can flip to lie nearly flat, turning the device into something of a digital drafting table so users can use the stylus to sketch artwork, modify architectural plans, and highlight documents.

The ability to draw on the screen and create content is how Microsoft believe it will distinguish the Studio from the iMac.

Microsoft also debuted the Surface Dial, a novel PC peripheral that resembles a hockey puck. Customers can twist the Dial to scroll through documents, adjust volume and expand or shrink images. Placed on the Surface Studio's screen, it can be turned to scroll through various colors in an art app.

"Every now and then, in pursuing our mission, we see an opportunity to create a new category of device," said Terry Myerson, executive vice president of the Windows and Devices Group.

The Surface Studio can be preordered today for $2,999, and will be available "in limited quantities" for the holidays, the company said. Windows 10 Creators Update will be available early next year.

The Surface Studio comes as computer sales slow and Microsoft looks elsewhere, such as cloud computing and its Office productivity applications, for growth. In the recently ended fiscal first quarter, Windows revenue from computer makers was flat. That beat the world-wide PC market as a whole, which slid 3.9% in the quarter that ended in September, according to International Data Corp.

Windows sales remain crucial for Microsoft. The reporting segment called More Personal Computing, which includes Windows, accounted for 45% of the company's quarterly revenue.

Microsoft also introduced an updated version of its slim laptop, called the Surface Book i7, which will cost $2,399 and be available in November. It said five partners -- HP Inc., Dell Inc., Lenovo Group Ltd., Acer Inc. and Asustek Computer Inc.--will launch virtual reality headsets that run the Windows update; those will debut next year and cost $299. And it introduced new Windows features including a three-dimensional version of its Paint app and live videogame broadcast capability, technology it picked up through its August acquisition of the Beam game-streaming service.

The Surface Studio pushes Microsoft farther into high-end PCs, a market that caters to creative workers who often favor Apple products. During an appearance at The Wall Street Journal's WSJDLive 2016 global technology conference Monday, Mr. Nadella noted that Microsoft's brand has "a bit of a utilitarian bent to it."

The Surface Studio device is a bid by Microsoft to move beyond that.

"They are trying to carve out a high-end niche market for Windows," Forrester Research Inc. analyst J.P. Gownder said. "This is not a mass-market PC."

Mr. Gownder, who saw the device in advance of its unveiling, described it as "lust-inducing." He said it could be an aspirational gadget that could have a "halo effect" on Microsoft's other computers. And he believed it would provide guidance for Microsoft's PC partners to come up with their own Windows all-in-ones.

The new products and updates are key to Microsoft's bid to keep the Windows engine running. The company disclosed that more than 400 million devices now run Windows. That is a 50 million jump from the company's last update in June.

After the previous update, the company retreated from its ambitious target of one billion Windows 10 devices in use by June 2018, citing its pullback from making smartphones that run the operating system.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

October 26, 2016 14:36 ET (18:36 GMT)

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