Don Reisinger

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Is Microsoft Really A Hardware Company Now?

The company has made billions on software. But Steve Ballmer says its future is hardware.

  • December 5, 2012

Speaking last week before shareholders, Ballmer said that as his company looks to the future, it needs to acknowledge that “getting the innovation right across the seam of hardware and software is difficult unless you do both of them.”

“What we’ve said to ourselves now is that there is no boundary between hardware and software that we will let build up as a kind of innovation barrier,” Ballmer said during a question-and-answer session, according to InformationWeek.

Ballmer was also quick to point out that Microsoft has “good hardware partners.”

That Ballmer and his team have acknowledged that hardware is the future for Microsoft is not a surprise. In October, the company launched the Surface tablet, a device designed to take on Apple’s iPad. Neat features, like a cover that doubles as a keyboard, aside, the major aspect of that launch was that Microsoft was taking matters into its own hands and delivering its own hardware.

And why not? Looking around the tablet market, Microsoft had absolutely no presence. Some blamed it on the company’s Windows 7, which wasn’t ready for the tablet space, but it might have had as much to do with vendors wanting to get in on Android’s growth and not get bogged down with Windows.

Vendors might just stand at the center of Microsoft’s troubles. Looking around the PC market, there are few devices that actually match the innovative design of Apple products. Whether it’s a notebook or desktop, chances are, a customer is buying a product running the same operating system and featuring the same internal components, regardless of which company makes it. And aside from a few design ideas here and there, most of the products look the same.

In a recent note, Jefferies analyst Peter Misek reported that he believed PC sales will be down 4 percent year-over-year by the end of 2012. He also noted that fourth-quarter PC shipments will disappoint because of “lackluster” offerings from vendors.

Misek said that 2013 shipments could drop 3 percent next year and 5 percent in 2014.

Given that, it’s clear Microsoft needs to do something. Since its founding, Microsoft has relied on other companies to push products out the door to drive its own sales. The fewer computers Dell, HP, and Lenovo sell, the slimmer Microsoft’s chances of generating the same level of revenue it has in the past.

Meanwhile, Microsoft is watching Apple generate record profits by delivering products that combine software and hardware and don’t allow other companies to get in the way.

Still, following the Apple model isn’t necessarily a foolproof plan for Microsoft. If Microsoft delivers products that effectively become competitors to those from its partner vendors, the companies might revolt. And if vendors see Windows-based PC or tablet shipments fall, they might decide to reduce their reliance on Microsoft.

But at this point, that’s all speculation. Ballmer has not said how his company might plan to double down on the hardware business, and except for the Surface, Microsoft has not announced any new hardware. However, if the chief executive is to be believed, that might soon change.

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