A few days ago, Microsoft (MSFT) reported that Steven Guggenheimer would no longer be the head of the OEM Division, as part of Microsoft's long term planning. Steven Guggenheimer was replaced by Nick Parker, who came from Marketing and Sales. As a long standing head of this division, Guggenheimer was probably one of the persons with the closest ties to Microsoft's OEM's such as Dell (DELL) or Hewlett-Packard (HPQ).
With this move coming so soon after Microsoft presented the Surface, a move that irked some of Microsoft's OEMs because it will represent direct competition to their wares, speculation quickly grew that the two events were related. This was dismissed by Microsoft through Frank Shaw, Microsoft's corporate communications executive, as per Bloomberg:
"As a result of long term planning, Steven Guggenheimer will move on from his current role as CVP of the OEM Division effective July 1, to coincide with the start of Microsoft's fiscal year"
However, yesterday Digitimes came up yet again with another interpretation that might really have some meat to it. Basically it says that by ditching a longstanding contact with the OEMs so close to the Surface presentation, Microsoft is saying that those relationships are somewhat less important than the impending new strategy of combining Microsoft software with Microsoft hardware (in the form of the Surface).
This might be a new path for Microsoft. Although Microsoft has had some hardware presence in the past, it was mainly outside its core areas. Microsoft had a large success with the Xbox, some long standing accessories' businesses with mice, keyboards and the like, and some failures such as with the Zune. But it never really encroached on its bread and butter businesses which are Windows / Operating systems and Office / Enterprise. Now, by bringing Windows 8 and the Surface tablet together, it does both (the Windows RT ARM-based tablet will include Office right from the start).
So here Microsoft might somehow be pursuing a strategy similar to Apple's (AAPL). Apple makes (subcontracts) most of its hardware in a closed system using software it also develops in-house. Indeed, most of Apple's profits come directly from selling that same hardware at a premium.
It's hard to gauge how much really is changing about Microsoft. It might be that Microsoft sees that selling its software into the mobile space is a no-go with Android being free, and decided that the only way to conceivably make money in the sector is to do the hardware itself, much like Apple. Anyway, this bears watching. Four of the most obvious consequences, if this really represents a shift by Microsoft, could be:
- Microsoft would have an easier way to make up margins in the mobile segment (tablets and eventually smartphones, though Microsoft has denied entering that market). It would be somewhat easier because Microsoft would combine its software margin with the hardware margin. This would represent an approach to the Apple model;
- Microsoft would have larger control over the user experience, something where Apple excels, and which Microsoft has up to this point been trying to match by placing very exacting technical specifications like it does with Windows Phone;
- Microsoft's OEMs would be in a disadvantageous position versus Microsoft, something which could alienate them, though those OEMs coming from the PC World don't seem to have much choice;
- Finally, it could give Microsoft a new avenue for revenue growth, given that hardware in the mobile space would easily make a difference in Microsoft's $73 billion yearly revenues.
All in all, it's too soon to know how this will play out, it might still be that Microsoft won't take this too far alienating its own hardware ecosystem.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.