Microsoft's Surface fondleslabs haven't been selling as well as it or its retail partners would have liked, but top execs say that building hardware in-house is an essential part of Redmond's strategy, and one that has already paid off.
Speaking at a meeting with financial analysts on Thursday, Microsoft chief operating officer Kevin Turner said that past setbacks – such as the $900m writedown Microsoft took on the failed Surface RT – would not deter the company from building more hardware products in the future, and that "devices and services" remained its focus.
"That doesn't mean we're going to make all of the devices," Turner said. "But we are going to make some of the devices and some of the hardware."
During his presentation, Turner acknowledged that there was "a lot of consternation in the OEM channel" when Microsoft first announced its plans to build its own tablets. Among the critics, Acer CEO JT Wang famously asked Redmond to "please think twice" before diving into waters traditionally reserved for its partners. But according to Turner, much of that trepidation has since evaporated.
"Today when you talk to the OEM channel, in most instances they would tell you the progress we've made in [Windows] 8.1 – because we have a first-party product at Microsoft – is far superior to anything we've ever delivered, from a hardware-software integration perspective," he said.
By building its own hardware, Turner said, Microsoft has gained a far better insight into what he described as the "seams" between hardware and software, which have often been a weakness for PC makers when compared to more tightly integrated vendors, such as Apple.
"It's been exploited against us in the past," Turner said. "But going forward, we have a much different lens to be able to engage more deeply with our partners by having first-party product."
Microsoft will unveil the next generation of that "first-party product" – the new Surface and Surface Pro – at a media event on Monday, September 23.
The fact that Microsoft is pressing ahead with a second-generation Surface model based on an ARM processor running Windows RT has baffled some Redmond-watchers, given what a colossal bomb the original Surface RT was.
But in a Q&A session during Thursday's meeting, Terry Myerson, Microsoft's executive VP of operating systems, described Surface RT as "our first ARM tablet" and that future versions would bring considerable improvements. Windows RT 8.1 supports "the next generation of ARM silicon," he said, and includes a variety of enhancements that will make future ARM Windows slabs more compelling.
What's more, Myerson said, Redmond has been working to bring its various OS platforms closer together, hinting at a possible future intersection of Windows RT and Windows Phone.
"We should have one silicon interface for all of our devices, we should have one set of APIs on all of our devices, and all of our apps should be available on all of our devices," he said.
Later in the day, Microsoft CEO Steve Ballmer told the assembled analysts that the company had no illusions that it was competing equally in every device form factor. Acknowledging that Redmond is particularly weak in smartphones, Ballmer described Microsoft's impending acquisition of Nokia as an attempt to improve that situation.
"We have almost no share. I don't know whether to say that with enthusiasm or uncomfortable tension," he observed. "But I'm an optimistic guy. Anywhere we have low market share, I see upside opportunity." ®