Microsoft: Surface Tablets Will Compete With OEM Partners

In the company's Form 10-K annual report filed Thursday with the U.S. Securities and Exchange Commission, Microsoft states: "Our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform."

The statement, included in the "Risk Factors" section of the report, is the most definitive from Microsoft about the impact the Surface tablets will have on its relationships with other tablet makers.

[Related: The 10 Coolest Tablets Of 2012 (So Far) ]

Microsoft introduced the Surface tablets at a flashy press event in Los Angeles last month. The first Surface tablets are expected to be available in October when Windows 8 begins shipping.

Since then company executives have downplayed the potential for conflict with such OEM partners as Samsung, Lenovo, Acer and Hewlett-Packard.

In an interview with CRN at Microsoft's Worldwide Partner Conference (WPC) earlier this month, CEO Steve Ballmer said Microsoft remains committed to its OEM partners.

"Look, we have been very good about supporting our OEMs. Very good," he said. "There is nothing that we can build that our OEMs can't build with their own energy, innovation and the like."

Ballmer also argued that by developing Surface, Microsoft could spur OEMs to be more innovative. "I don't think it is going to hurt in terms of stretching innovation," he told CRN.

In his WPC keynote speech, Ballmer referred to Surface as a "design point" for OEMs. That same day Tami Reller, chief marketing officer for the Windows and Windows Live Division, devoted much of her keynote speech to showcasing laptops and mobile devices manufactured by OEM partners.

The OEMs themselves have remained relatively quiet on the issue, although they clearly had no inkling that Microsoft was developing a competing tablet product.

In the 10-K report, Redmond, Wash.-based Microsoft also said the market shift from desktop computers to tablets and smartphones could impact its sales of Windows software.

"We derive substantial revenue from licenses of Windows operating systems on personal computers," Microsoft said in the 10-K report. "The proliferation of alternative devices and form factors, in particular mobile devices such as smartphones and tablet computers, creates challenges from competing software platforms. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users may increasingly turn to these devices to perform functions that would have been performed by personal computers in the past.

"Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract applications developers to our platforms," the report said.

The statements in the Microsoft 10-K were first reported Thursday night by the The New York Times' Bits Blog Web site.

A Microsoft spokesperson did not immediately return a request for additional comment.

PUBLISHED JULY 27, 2012