Microsoft Makes an Obvious Confession

Microsoft (Nasdaq: MSFT  ) is coming clean. The company is admitting that its hardware partners -- you know, that group responsible for a big chunk of Windows revenue (OEMs were 20% of consolidated revenue last quarter) -- just might not take too kindly to Microsoft's decision to jump into the hardware arena and become a direct competitor.

Initially, CEO Steve Ballmer downplayed this threat at the device's unveiling, saying it was "just a design point" with a "distinct place in what's a broad Windows ecosystem." He continued:

And the importance of the thousands of partners that we have that design and produce Windows computers will not diminish. We have a mutual goal with our OEM partners to bring a diversity of solutions, Windows PCs, phones, tablets, servers to market. And what we seek to have is a spectrum of stunning devices, stunning Windows devices. So, every consumer, every business customer can say, "I have the perfect PC for me." ... We're excited about the work our OEM partners are doing on Windows 8.

Source: All Things D.

That's a hard sell to convince anyone, but it didn't stop Microsoft from trying to save face. Interestingly, Dell (Nasdaq: DELL  ) just announced a handful of new laptops running Red Hat (NYSE: RHT  ) Enterprise Linux as evidence that the PC maker is eyeing other operating systems. Meanwhile, by the looks of it, Microsoft also isn't letting Dell in on the ground floor of Windows RT tablets, even after Hewlett-Packard (NYSE: HPQ  ) is reportedly giving up that seat to focus on Intel-based Windows 8 tablets.

The Redmond giant has been maintaining publicly for weeks that everything will remain copacetic with the OEM status quo.

On the other hand, Microsoft's most recent 10-K is a bit more candid, saying, "In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform."

That's more like it, Mr. Softy.

Google (Nasdaq: GOOG  ) had better be taking notes, too, since it's also now a partner-turned-competitor in the Android tablet market with the Nexus 7. Transitioning from an open model to a less-open model has some unique challenges.

Forget convincing the broader public: Microsoft wasn't even fooling itself.

Windows 8 hopes to be Microsoft's key to mobile victory, but its success remains to be seen. Instead, consider this company that is already banking on mobile device adoption and is also one of Microsoft's key partners. This special free report is absolutely free.

Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Google, and Intel. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Intel and creating a bull call spread position in Microsoft. 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. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 29, 2012, at 10:30 AM, applefan1 wrote:

    So what are their OEM suppliers going to make? They can't run Apple's OS, and Chrome is kind of silly. I don't think the OEM partners have much choice. So this OPEN standard that Microsoft claims their product is more like a FORCED standard in my opinion. At least with Apple, you can always run another OS in addition to OS X, but again, why would anyone want to run anything else on the desktop?

  • Report this Comment On July 29, 2012, at 7:08 PM, techy46 wrote:

    So isn't competition good for the consumer and vendor's health? Android and Apple's success means Microsoft's vendors haven't been leading. So I guess Microsoft has to lead and their partners can either compete, follow or get out of the way. If Windows 8 and Windows Phone 8 are really good then Microsoft and their ODMs have nothing to worry about except who will make the most of that success. If W8 and WP8 aren't good enough than it really doesn't matter who makes the devices.

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