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Microsoft Is Losing Its Hardware Partners to Google

By Sam Mattera - Feb 6, 2014 at 10:00AM

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Sony's decision to sell its PC business means it is no longer a Microsoft OEM. Sony has become Google's partner.

One by one, Microsoft (MSFT -0.92%) is starting to lose its hardware partners to Google (GOOGL -0.14%). Most recently, Sony (SONY -1.73%) 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 (HPQ -0.39%) 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.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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