Is This Why Microsoft Wants to Do Its Own Hardware?

When you want something done right, sometimes you gotta do it yourself.

That's the message Microsoft (Nasdaq: MSFT  ) is sending to the world with its direct entry into first-party tablet hardware in its freshly unveiled Surface tablet. Directly implied from that message is a subtext that current hardware partners weren't pushing the envelope far enough with the physical bodies that house Mr. Softy's creations, particularly in the escalating competition with Apple (Nasdaq: AAPL  ) and its wildly successful integrated approach to computing.

I'll take it. All of it.
The New York Times describes the sense of panic that some Microsoft execs felt when Apple unveiled the original iPad in 2010, and they took note of the lengths that Cupertino went to in an effort to procure materials and otherwise lock down its supply chain in characteristic fashion.

Apple bought up massive amounts of high-quality aluminum from a mine in Australia for use in the tablet's construction, and it made Microsoft keenly aware that its own hardware OEMs simply weren't able or willing to devote as much into the build quality of its devices.

After all, one of the weaknesses of the open approach is that hardware OEMs are incentivized to cut corners wherever possible for the sake of margins and by definition are primarily concerned with the initial sale. The net result of that paradox is that hardware quality devolves over time as rivals cut costs to compete, and the consumer is the one who suffers for it.

In the days of the desktop PC, this approach led to low-cost offerings and the proliferation of Windows, and low hardware quality is less of a concern for a computer tower that sits beside your feet. With the meteoric rise of smartphones and tablets as more personal mobile devices, users can literally feel the difference in their hands every single time they pick up a piece of clunky hardware, so hardware build quality is much more important now than it has ever been.

The blame game
The clunky hardware of one partner in particular, Hewlett-Packard (NYSE: HPQ  ) , may have been a contributing factor for Microsoft's decision to jump into hardware, even as HP will bet big on Windows 8 tablets later this year.

Microsoft and HP preempted the iPad by unveiling a slew of "slate PCs" running Windows 7 in January 2010 at the Consumer Electronics Show. One of these devices was what would become HP's Slate 500. The Times also details how this device showed some promise during the initial collaboration stages, but development quickly devolved into finger-pointing.

HP Slate 500. Source: HP.

HP Slate 500. Source: HP.

A former Microsoft exec said HP's manufacturing department "completely ruined" the device as it began picking what key ingredients would power the device. The Slate 500 ran on an Intel (Nasdaq: INTC  ) Atom processor, frequently found in netbooks at the time.

The specific chip inside was built using the earlier Bonnell microarchitecture and 45-nanometer manufacturing process. This was before all the improvements in power efficiency that Intel has made with its Atom family more recently with its 32-nanometer Medfield Atom offerings, so the result was that the Slate 500 ran incredibly hot and had poor battery life.

The touchscreen wasn't very responsive, since the software and hardware weren't integrated together very well, leading an ex-HP exec to compare it to driving a car without a functioning steering wheel. HP complained that the operating system wasn't optimized for touch input, while Microsoft thought HP's hardware was less than impressive.

Within a matter of weeks, the iPad was unveiled, and the rest, as they say, is history.

Actions speak louder than words
The software giant tried to tap others in its wide stable of hardware OEMs to take on the iPad directly, but it continued to butt heads over pricing strategy and designs. Windows head Steven Sinofsky, who spearheaded the Surface unveiling, lost faith in hardware partners, according to the report.

Naturally, Microsoft's official statement, loaded to the brim with your usual fare of PR fluff, was that it "has tremendous respect for our hardware partners and the innovation they bring to the Windows ecosystem."

Although if they were doing such a good job, why would Microsoft need to intervene?

Apple's iPad dominance is making short work of virtually any and all tablet rivals, so should you buy Apple today? Grab a copy of this brand-new premium report that lays it all out there for current and prospective Apple investors, including the company's biggest strengths and what dangers lie ahead. Intel's newest Atom chips also happen to be a major threat to this company that's just now gaining momentum powering the next generation of smartphones and tablets. Can Chipzilla rain on this parade just as its getting started?

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, and Intel. Motley Fool newsletter services have recommended buying shares of Intel, Microsoft, and Apple and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1926744, ~/Articles/ArticleHandler.aspx, 4/23/2014 6:00:36 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement