Microsoft kept PC partners in dark about Surface

SAN FRANCISCO/TAIPEI Tue Jun 19, 2012 6:01pm EDT

Related Topics

SAN FRANCISCO/TAIPEI (Reuters) - Microsoft Corp kept its personal computer partners largely in the dark about its plans to launch a competing tablet computer, with some long-time collaborators learning of the new gadget only days before its unveiling, according to people with knowledge of the matter.

The secrecy that shrouded the Surface tablet risks alienating Microsoft's hardware partners, and marks a departure from the software company's tradition of working closely with hardware companies to test and fine-tune every new product.

It also underscores how Microsoft is starting to take pages from Apple Inc's playbook, keeping its cards close to the vest as it works to reinvent its Windows franchise and jump into the hardware business.

The earliest that Microsoft's personal computing partners were told about the tablet was last Friday, just three days before it was shown to the media at an event in Los Angeles, according to sources in the U.S. and Taiwan technology industry who spoke on condition of anonymity.

Windows chief Steven Sinofsky made a round of telephone calls but gave only the barest details on Friday, neither revealing the name of the gadget nor its specifications, two people close to Microsoft's partners told Reuters.

As such, Microsoft's main partners remained "in wait-and-see" mode and had to monitor the news for details, one of the sources said.

Microsoft Chief Executive Steve Ballmer told reporters the company had informed its largest hardware-manufacturing partners about the tablet. A company spokesman declined to say how much of a heads up the partners were given, or to elaborate further.

Sources at Acer Inc and Asustek Computer Inc, the world's fourth and fifth largest PC makers respectively, said the first they had heard of the new tablets was at Ballmer's news conference on Monday.

"No senior executives heard about the news last week," said an Acer executive, who added they were still seeking details. "We're quite surprised."

Acer shipped nearly 10 percent of PCs in the first quarter of 2012, with Asustek accounting for 6 percent, according to research house IDC.

The Surface marks a major strategic shift for Microsoft, ahead of the expected release of its new Windows 8 operating system by the fourth quarter of this year.

Microsoft is now pitting itself as a direct competitor, breaking with a 37-year old model where it had licensed its software to original equipment manufacturers (OEMs) such as Dell Inc or Hewlett-Packard Co, which made the machines.

That some of Microsoft's partners were not told beforehand about the Surface has led to a "sense of betrayal" in the industry, according to one source.

"This has always been a point of contention between OEMs and Microsoft -- Microsoft getting into the hardware space," a second source said.

Competing head-on with PC makers may damage a relationship that has long dominated the computer world, where nine out of 10 PCs run on Windows. Analysts pointed to similar concerns in the Android smartphone world surrounding Google Inc's decision to buy Motorola.

"The strategy may affect the willingness of device manufacturers to work so closely with Microsoft, as it will now be viewed as a competitor as well as a partner," said Andrew Milroy, vice president of ICT Research for Asia-Pacific at Frost & Sullivan in Singapore.

Driving Microsoft's shift, say analysts, is the growing clout of Apple, whose iPad is threatening the market for notebook computers. Notebooks are still largely a Windows business, but its growth is a fraction of the tablet market.

KNEW IN ADVANCE

Microsoft has long worked closely with its partners, who analysts say pay up to 10 percent of their material costs to license the Windows operating system.

HP declined to comment on whether it was given advance notice of the Surface, as did Dell. A Dell spokesman said, "We remain committed partners to Microsoft. We remain committed to Windows 8, and we will have a Slate product at the time of launch."

Another Asian PC maker, China's Lenovo Group Ltd, also declined to comment expect to say "Microsoft has been and will continue to be one of Lenovo's most valued partners."

Microsoft has not revealed how much it will charge for the two Surface tablets it unveiled on Monday, one running a processor designed by ARM Holdings and one with a chip built by Intel.

While the former would likely compete with the iPad, the latter may compete with the so-called Ultrabook, a generation of lightweight laptops designed by Intel. Ballmer said only that the tablets would be competitive in price with rival products.

"The big question is whether Microsoft puts out some sort of introductory pricing designed to seed the market or insists on making full margin on the device," said Jan Dawson, chief telecoms analyst at Ovum in New York. "However, it risks alienating OEMs even further if it prices lower than they are able to."

While pricing is a sensitive issue, more damaging may be the lack of warning the partners say they had from Microsoft. Ovum's Dawson said Microsoft was giving its OEM partners "a huge vote of no confidence" and they would "rightly feel slighted".

An executive at a Chinese handset maker, who didn't want to be identified because of the sensitivity of the issue, said: "It'll be a good strategy for Microsoft to focus on software development and leave its partners to make the hardware."

(Additional reporting by Clare Jim in Taipei, Miyoung Kim in Seoul and Bill Rigby in Seattle; Writing by Jeremy Wagstaff in Singapore; Editing by Neil Fullick, Edwin Chan and Tim Dobbyn)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (11)
jackofthehill wrote:
Everyone makes fun of Windows OS because they never manufactured their own pc and bind it to their OS. Now that they’re doing it it’s a slap in the face? Hmmm. So it’s a no win for MS ever?

Jun 19, 2012 6:26pm EDT  --  Report as abuse
Jocomus wrote:
Hardware is never the strength of Microsoft and launching inferior, less versatile hand pieces would make Apple even more outstanding.
If one is best at producing shampoo, one wouldn’t produce soft drinks that render consumers’ stomach sick.

Jun 20, 2012 4:33am EDT  --  Report as abuse
StigTW wrote:
Reality is MS stepped up where they needed to. If these ‘hardware’ partners were doing such an incredible job then it would have been one of their products in the spotlight.
If you’re a hardware partner time to step up. The bar has been raised. (rip insanitary ipad)

Jun 20, 2012 5:13am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.