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Microsoft Is Losing Its Hardware Partners to Google

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One by one, Microsoft (NASDAQ: MSFT  ) is starting to lose its hardware partners to Google (NASDAQ: GOOGL  ) . Most recently, Sony (NYSE: SNE  ) announced it was exiting the PC business, selling its Vaio division to a group of outside investors. Rather than PCs, Sony will focus on mobile devices.

Sony isn't alone. Microsoft's other hardware vendors -- including Hewlett-Packard (NYSE: HPQ  ) and Lenovo -- are increasingly moving in a similar direction. If these trends continue, Microsoft might one day be the only major corporation still making Windows PCs.

Sony dumps Vaio, focuses Xperia
Sony announced it was unloading its PC division on Thursday, selling it to a group of Japanese investors. While it's possible these investors could turn the Vaio business around, Sony didn't seem to think it was worth the effort.

Sony will continue to make computing devices, but they won't run operating systems made by Microsoft. Sony's line of high-end smartphones and tablets, the Xperia Z and its many variations, are powered by Google's Android. Sony's SmartWatch 2 isn't really an Android device in the purest sense, but it tethers to smartphones running Google's operating system.

There were rumors that Microsoft was encouraging Sony to release a flagship smartphone running Windows Phone 8. While that could still happen, it seems quite unlikely -- now out of the PC business, Sony has no incentive to push Microsoft's operating systems in any capacity.

Hewlett-Packard pushes Android and Chrome OS
Hewlett-Packard considered exiting the PC business in 2011, but since becoming CEO, Meg Whitman has squashed that initiative. But even as Hewlett-Packard remains one of Microsoft's largest OEMs, the company is increasingly moving away from Microsoft's operating systems.

Hewlett-Packard released three different Chromebook models last year, along with several Android-powered tablets. In January, Hewlett-Packard unveiled a desktop PC that ran on Android (one of the first of its kind) and returned to the smartphone market with two Android-powered phablets.

Hewlett-Packard will likely continue to sell Windows machines for quite some time, but it seems evident that the company's future won't be tied to Microsoft's. Last year, CEO Meg Whitman labeled Microsoft "a competitor" and seems intent on steering the company away from Windows.

Lenovo shifts to mobile
Like Hewlett-Packard, Lenovo has embraced Google's mobile operating system with a bevy of tablets and an Android-powered, all-in-one desktop PC. But bigger than those initiatives are Lenovo's handset ambitions.

The Chinese giant made headlines by acquiring Google's Motorola unit last week. With Motorola, Lenovo aims to become a major player in the U.S. handset market, complimenting its Chinese business, which is already enormous. In fact, despite being the world's largest seller of Windows PCs, Lenovo actually sells more smartphones and tablets than laptops and desktops.

All of those devices run some form of Google's Android, meaning Lenovo is actually already a bigger partner to Google than it is to Microsoft. Although it should be noted that Google's services, and its app store Google Play, are basically a non factor in China.

Windows remains challenged
There are a number of reasons Microsoft's (former) hardware partners are increasingly turning to Google: A general lack of developer support makes Windows Phone less desirable to consumers, while Google's willingness to give Android and Chrome OS away for free makes it easier to profit from hardware.

The biggest factor may be Microsoft's decision to enter the hardware space and effectively become the ultimate competitor. Every time a consumer or business user buys a Surface or Surface Pro, Microsoft gets a sale at the expense of Hewlett-Packard and Lenovo, and Hewlett-Packard and Lenovo have to pay Microsoft for the privilege of competing. Perhaps that's why Sony decided to exit the PC business.

It won't happen overnight, but eventually, Microsoft's commitment to devices could push all of its former partners out of the space. In the end, Microsoft could be forced to make all the Windows PCs itself.

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Read/Post Comments (9) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On February 06, 2014, at 11:26 AM, aviator189 wrote:

    this could benefit Microsoft in the long run though.

    a good majority of people still need windows-based pc's for schoolwork, work, etc. Many, many of the things that windows does, chromeos or android cannot do.

    If all of the hardware partners do indeed back out of producing hardware for windows, I can easily see Microsoft creating a Surface laptop or a laptop counterpart to their surface brand (or simply expanding their surface line to include products in laptop form with larger screens, more powerful hardware, etc.).

    Then they'd be able to profit off the hardware sold and they'd definitely benefit from being the only or one of few windows hardware makers.

  • Report this Comment On February 06, 2014, at 12:22 PM, GameBot wrote:

    ummm, Nope.

    Lenovo, is not shifting to "mobile" I never heard such nonsense.

    Lenovo is expanding, they sell everything from convertibles, laptops, desktop and servers to smart phones and tablets.

    Buying MOT was simply buying a cell phone company, Lenovo never made WP devices and has never been "locked" to MSFT.

    SO Lenovo is a nonstarter.

    Sony has not been a volume player for many years, the buyers will continue to sell WinTel devices....

    HP broke it commitment to Microsoft about 5 to 7 years ago, the "special" relationship ended, and it proved to be the biggest mistake they ever made, in fact if anything that drove others closer to MSFT.

    Anyway your entire story missed the mark by a mile.

    MSFT is making PC devices because its massive number of partners have all failed to ship high quality well priced machines.

    MS has worked with them for years, but still they fail to sell "clean" machines and fail to use good drivers , instead they ship 20 machines preloaded with junk and all using the same worthless 10 year old drivers just to save a buck or two.

    So MSFT has decided to shoot a warning shot across their bows, either start doing it or we will.....

    Furthermore your story failed 100% to point to the newer stronger companies that have come up over the years. Lenovo is a great example of that, unheard in the west only a few years ago , since buying the "Thinkpad" brand from IBM they have taken over the number one slot.

    Who is say the buyers of Sony's ailing PC arm will not turn into a great win...

    To me this story is nonsense, why not write one where you claim Apples partners have abandoned them because now they make phones and machines for MSFT too.....

  • Report this Comment On February 06, 2014, at 12:38 PM, kellenbmiller wrote:

    Watch Microsoft will introduce an OS just for the Cloud. The hardware companies had always been on the verge of closing up. It was never not a highly unstable of a business. They like that Google seems to make money by offering their OS for free. The PC market is down because of Mobile the urge to by a PC to talk to friends or email has been circumvented by mobile. Even though mobile does not replace it. The illusion that it does is their. Microsoft, was easy to use in the beginning. Mobile is easy to use now. And a free open source OS is easy for the hardware companies to use. Microsoft should follow suit. People like windows Microsoft just needs to Think different and copy the competition to remain relevant.

  • Report this Comment On February 06, 2014, at 3:04 PM, ipinsao wrote:

    Google is loosing control of Android. Samsung has more ownership of Android and Google is scared of that.

    The HPs and Dells want to blame windows for their poor hardware sales so they try to switch to Android but I bet people will still buy Samsung devices when it comes to Android devices. HTC and Sony are struggling with their Android devices.

    Lenovo has made great PCs that people want to buy like the Yoga.

  • Report this Comment On February 06, 2014, at 3:23 PM, techy46 wrote:

    Hardware device OEM's or ODM's are going to build and sell whatever their customers. consumers and enterprise, want to buy. That's why Intel's ported Android 64 to X86 and that why Microsoft's building devices. It's going to be all out mobile warfare just like it's always been in the PC world. I can't wait for web advertising to hit the wall as everybody realizes it's not unique nor really wanted by most consumers.

    Microsoft should allow their customers to block or filter ads and cookies by site and source so I can really turn off Google and Yahoo.

  • Report this Comment On February 06, 2014, at 4:03 PM, SamSmith wrote:

    Many of these computer manufacturers got caught with their pants down, and are blaming Microsoft for their woes, for many years HP especially have been churning out garbage with celeron and 256mb memory and waS minting money from these virtually unuseable junk that caused consumers much headaches after a couple months of use because they were simply underpowered. Then the netbook junk came on the market and that pony ran for a few years until the iPad came out and basically stole all the Celeron and netbook sales and more.

    Lets not forget many of these desktops and laptops were ugly as sin to begin with god forbid you would have one of them anywhere in your living room, Microsoft basically forced the OEMs to up their game when Microsoft produced the Surface and showed these decades old hardware gurus how to make hardware, talk about being beaten at your own game.

    The only reason many of these companies are running to Android is because mobile devices by nature have a hard expiry date of 2 years, even the iPhone has a 2 year expiry date and it is supposed to be the best, but we are talking about Android and we know how pityful and sluggish these devices get and they aren't cheap so they are great margins for these OEMs. It's basically same old tricks different OS, sell junk that don't last, and keep the consumer coming back and hope the consumer does not run to Apple.

  • Report this Comment On February 06, 2014, at 8:14 PM, Drichter wrote:

    Bring it on.

    My surface and windows phone work way better than any other laptop and android phone combination I have owned or tested.

    If Microsoft can keep pushing forward they will come out of this stronger, which they definitely need after such a mediocre showing this past decade.

  • Report this Comment On February 07, 2014, at 11:38 AM, memphisblue1 wrote:

    As you should note, As the dominate operating system on more than 50% of the world's PCs Microsoft can not give away Windows like Google gives away Android because if it did it would find itself back in court. So the company needs to find a strategy that meets market demand while also satisfying the justice department.

  • Report this Comment On February 07, 2014, at 12:56 PM, toph36 wrote:

    Sorry. You miss the fact that a huge number of Windows machine purchases are from Corporations. My company will never be buying Android "PCs" or machines running Chrome OS. Windows is entrenched in the enterprise and Lenovo still makes a killing in that space. HP still does well for sure. Neither is giving that up. Microsoft can't make up the difference in volume. The problem with Windows PCs is in the consumer market. HP is certainly hedging their bets in that market. Let's not forget too that while Sony is not making PCs going forward, another entity will continue to make Viao PCs. Let's hope a more focused entity can do a better job than Sony did.

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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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