Microsoft Admits Surface Tablet Could Hurt Business

Microsoft has acknowledged that its decision to build its very own tablet computer, Surface, could upset the companies that produce Windows PCs. The firm has also admitted that the rise of tablet devices could dramatically impact the traditional PC market.

Both comments come in Microsoft's latest Form 10-K, which publicly traded companies must submit to the Securities and Exchange Commission as an annual report on the company's activity.

The form contains a section where companies must detail any potential risks to their business. This helps existing and would-be stockholders to make more informed trading decisions.

Gadget Makers May Not Like Surface Competition

In the document, Microsoft confirms it will be manufacturing and selling its own tablet computers under the Surface name once Windows 8 is released in October. It warns that "our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform." (Source: sec.gov)

(OEM partners are original equipment manufacturers: in other words, firms that make computers.)

So, is there really a threat to Microsoft's relationship with computer producers?

Probably not. While it's true these companies may be disappointed to have Microsoft as a rival, it's unlikely they'll change their behavior. After all, most PC makers rely on Windows for the bulk of their business.

However, if Microsoft is seen to be exploiting the natural advantage it has in producing both the software and hardware for the same device, that could really upset the firm's PC-making partners.

Tablets & Smartphones A Threat To PC Market

The Microsoft filing also warns that tablet computers and smartphones may pose a two-pronged threat, taking away both customers and software developers:

"These devices compete on multiple bases including price and the perceived utility of the device and its platform," Microsoft said. (Source: computerworld.com)

"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 danger here is a vicious circle: if PCs become less popular, that could lead developers to cut back the amount of Windows software they produce. That, of course, would make PCs even less attractive to consumers.