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Hewlett-Packard Company Is Becoming Microsoft’s Biggest Enemy

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Forget Apple and Google (NASDAQ: GOOGL  ) -- Hewlett-Packard (NYSE: HPQ  ) is quickly emerging as the biggest threat to Microsoft (NASDAQ: MSFT  ) . Although the company remains the largest seller of Windows PCs in the US (and the second largest in the world), Hewlett-Packard is increasingly undermining Microsoft's business.

Based on a number of recent initiatives, it is clear that Hewlett-Packard is in the midst of a transition -- from Microsoft's partner to Google's. As the manufacturer many turn to when they need a new PC, Hewlett-Packard is uniquely positioned to devastate Microsoft's business.

Hewlett-Packard pushes Windows 7
Earlier this week, Hewlett-Packard made headlines by "bringing back" Windows 7 "by popular demand." While the promotion is more marketing gimmick than actual policy change -- Hewlett-Packard never stopped selling Windows 7 PCs -- the move is still not good for Microsoft.

On the surface, Hewlett-Packard is inherently siding with Microsoft's critics, tacitly admitting that Windows 8 is a terrible product. But more significant is the long-term consequences the move could have on Microsoft's attempts at transiting to a world centered around mobile computing.

Microsoft needs people to use Windows 8. The sooner they start using it, the sooner they'll come to terms with the major interface revisions (like the removal of the start button), and the more interest developers will have in Microsoft's Windows 8 App store.

The longer people stay with the Windows 7, the more Microsoft's operating system will remain dependent on traditional PCs. If Windows is going to have any place in the world of mobile computing, Windows 8 needs to become ubiquitous and familiar.

Going after Windows Phone in emerging markets
Then, there's Microsoft's attempt at bringing Windows to smartphones. When Microsoft announced that it was acquiring Nokia's handset business, it argued that the success of Windows Phone would boost PC sales -- that users of Windows Phone would naturally choose PCs running Microsoft's Windows.

Evidently, Hewlett-Packard doesn't buy that logic. Or if they do, they don't plan on selling many Windows-powered PCs for much longer. When the company unveiled its two smartphones earlier this month, it could've used Windows Phone to power them -- but it didn't. Instead, it chose Google's Android.

Hewlett-Packard's decision is all the more noteworthy given the market Hewlett-Packard is competing in -- India, one of the only countries where Windows Phone is popular. Nokia's (soon to be Microsoft's) Lumia 520 was a major success in India, helping Microsoft's Windows Phone become the second-most popular mobile operating system. Launching a Windows Phone-powered device in India could've helped the operating system to grow further -- instead, Hewlett-Packard backed Google.

Chromebooks and an Android-powered desktop
Hewlett-Packard's support of Google isn't limited to smartphones. The company embraced Google's Chrome OS with both hands last year, releasing three different Chromebook models in 2013.

More recently, at the Consumer Electronics Show earlier this month, Hewlett-Packard unveiled a radical new desktop PC. Instead of using Microsoft's Windows, Hewlett-Packard's new  21-inch, all-in-one PC is powered by Google's Android.

Obviously, Google's operating systems are a threat to Microsoft's Windows, as any consumer that buys Hewlett-Packard's Android desktop or one of its Chromebooks is probably substituting it for a Windows machine. But it isn't limited to lost Windows revenue -- as Microsoft has not released a full version of Office for Android, and its cloud-based version of Office remains limited, Chromebooks and Android-powered PCs weigh on Microsoft Office as well.

From ally to competitor
Last fall, Hewlett-Packard's CEO Meg Whitman labeled Microsoft a "competitor" -- the company is living up to that label.

As users increasingly flock to mobile devices, Microsoft needs Windows 8 and Windows Phone to be successful -- otherwise it's operating system business could fade into irrelevancy. Moreover, as it has stubbornly refused to release full versions of Office for other operating systems, fewer Windows users results in fewer Office customers.

Rather than support its longtime partner in this transition, Hewlett-Packard is increasingly working to block Microsoft's progress -- pushing Google's operating systems over Microsoft's, and limiting Windows 8 adoption.

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Read/Post Comments (12) | 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.

  • Report this Comment On January 22, 2014, at 10:25 AM, JimBo11 wrote:

    Sam Mattera of Motley Fool: HP is not trying to become MSFT’s enemy as you suggested. They are just being cost sensitive, so that their product is cost competitive to their competitors. Android does not charge for license, therefore it is cheaper. There should not be any enemy in business; it is about survival not fighting, the fighting you suggested is about you: the article writers, please stop it, especially it is not true.

  • Report this Comment On January 22, 2014, at 10:45 AM, botfeeder wrote:

    "it argued that the success of Windows Phone would boost PC sales -- that users of Windows Phone would naturally choose PCs running Microsoft's Windows.

    Evidently, Hewlett-Packard doesn't buy that logic."

    Or, they may buy the logic that Windows Phone users will buy windows PCs, but they may feel that there will be hardly anyone interested in the Windows Phone to begin with.

  • Report this Comment On January 22, 2014, at 10:57 AM, st0815 wrote:

    MS main problem is that customers don't want Windows 8, otherwise HP's initiative wouldn't matter in any way.

    The core idea - having software which runs both on desktops/laptops and on touch devices makes a lot of sense. Particularly as it would allow MS to use their advantage on the desktop market to boost SW availability for tablets and phones.

    However the execution was horrible. Rather than coming up with a unified UI, it burdens the user with two of them which are not aligned in any way. So the desktop sports by default a UI which is not suitable for mouse use, and application software supports either one UI or the other. The traditional UI is not really usable with a touch interface, the new (Metro) UI is inconvenient for standard desktop use.

    Realistically a desktop user is better off with Windows 7 and sticking to applications written for that UI, and a tablet user is basically restricted to Metro applications. Given what MS set out to do, that can only be described as a failure.

  • Report this Comment On January 22, 2014, at 10:58 AM, madav1138 wrote:

    Trashy articles like these are the reason the motley idiots are irrelevant and stopped reading them and visiting their website.

    W8 is not a bad product, its those of you who have taken sides in the competition like Apple, where you give them a pass on everything.

    Just another biased rag on Apple's side like most of the media because Steve Jobs was a flaming liberal tyrant.

  • Report this Comment On January 22, 2014, at 11:00 AM, madav1138 wrote:

    So you use desktop mode on your desktop and metro for your phone, what's the problem? Right click the windows button and the start button menu magically appears. You can pin the control panel to your task bar.

    You are idiots for failing to do any simple due diligence, just because you don't know how to right click on anything because you use a one button mouse doesn't mea its not there. Grow some brain cells.

  • Report this Comment On January 22, 2014, at 11:04 AM, chilero wrote:

    HP puts up a marketing slogan and all the lazy tech bloggers pick it up as news.

    They, as every major OEM has, been selling Windows 7 products continually since the release of Windows 8.

    This pattern has been repeated for a decade with all previous Windows products.

  • Report this Comment On January 22, 2014, at 11:48 AM, jameskil wrote:

    Sounds like Novell and Sun Microsystems all over again ...

  • Report this Comment On January 22, 2014, at 1:10 PM, GonzoDeluxe wrote:

    Actually, from another point of view, Microsoft started this war when they introduced the Surface tablets right when HP was staggering around in the tablet market. HP's actions are more returning the favor than independent action.

    On the other hand, I see this as a good move for HP. One thing they need is more diversity in their product line-up, at least until they find something that catches fire in the market.

  • Report this Comment On January 22, 2014, at 1:16 PM, emilykulish wrote:

    Sam Mattera is a fool keep writing this kind of nonsense articles just to increase its readership.

    HP has no options but to partner with Microsoft. If HP wants to go 100% Android / Chromebook, it will be out of business overnight. HP is way too late on Android / Chromebook, it only has a small market share. There is no way for HP to win over companies like Samsung. Android / Chromebook is a Zero-Profit business even though Google does not charge license fees. Revenue-wise, each Android / Chromebook device is only worth 1/3 or 1/4 of a PC device. Going 100% Google will shrink HP revenue by at least 70%.

    On the other hand, if HP is stupid enough to go 100% Google, it will not hurt Microsoft at all. The gap will be quickly filled by Dell and Lenovo, and Microsoft itself may step up on hardware.

  • Report this Comment On January 22, 2014, at 1:41 PM, spitball wrote:

    Actually HP started it long before the Surface issue by buying Palm OS. That was the first screw-you to Microsoft. Microsoft, if it had any brains would buy Dell for the server and storage market and either keep or sell off the desktop side of the house. There is very little profit in that anyway. Wouldn't it be cool to have the whole DC locked and throw that StoreSimple appliance at it as well to backup old data directly to Azure?

    All it takes a NEW....EXTERNAL...CEO with a bit of common sense and some guts. Baller continuously cow tows to the OEMs and runs scared. I would tell HP to pack sand, stop selling Windows OEM to them (if legal) and dare them to make a go of it with Linux/Android. Like a previous poster said, they would be out of business overnight,

  • Report this Comment On January 22, 2014, at 4:16 PM, TIMI3 wrote:

    HP would be in big trouble if they go 100% Google. Microsoft if the pillar of HP. In many countries like Nigeria, many people buy HP because of the Windows os and Office. If HP is to go 100% Android, Microsoft will simply take over the hardware market as thy have the capability to do anything they set their mind to. Personally, I don't like Android. As it Lags a lot. Android is limited. Also I really do not know what people are saying that Pc's are not going to be selling in the near future. Without Pc's many things would not be possible. I programme with my pc, I stream programmes with my pc. There are so many things the pc can do that the tablet cannot. I can also Run the Same Android os the tablets and phones use on my pc. The pc is Unlimited and the Tablet is limited

  • Report this Comment On January 22, 2014, at 8:01 PM, symbolset wrote:

    Being a PC OEM has not been a very profitable venture for a very long time. IBM was wise to sell off their PC unit to Lenovo in the run-up to the Vista debacle. After many years of loss-making Lenovo is finally eking out 2% margins once in a while. Now the word comes IBM is looking to unload their server unit as well - a hint that server margins are likely to be and remain poor from here on out as business shifts to the "cloud" and the benefits of virtual consolidation are realized with "private cloud".

    If there's no money in it, why do it?

    So Microsoft decides to compete with their own partners on phones, tablets and laptops (don't kid yourself, Surface Pro is a laptop), the only spots where margin is left in PCs. We know from the software world what happens when Microsoft decides to compete with a partner's product. It's not a friendly rivalry, full of good sport. It's the sort of deathmatch where the government must occasionally step in to protect the consumer.

    This is not a matter of HP becoming Microsoft's enemy. It's a case of the staid, serious businessmen who manage HP looking to fulfil their job requirements and get some return for their shareholders' capital investment. Looking into a future where a large part of your business goes to profitlessly supporting such a "partner" as they consume the highest-margin parts of your business, a wise planner would look to invest what capital remains in a field with more potential.

    Microsoft is the biggest threat to their own business. If they can't find a way to make producing hardware for their software to run on a profitable venture they will soon find the need to produce all the hardware themselves. They have a lot of money, but they don't have that much money.

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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