Microsoft Corp. (MSFT:US) Chief Executive Officer Steve Ballmer said the maker of Windows programs must exploit the opportunity to combine hardware and software as it challenges Apple Inc. (AAPL:US)’s iPad with the Surface tablet computer.
Microsoft, the world’s largest software maker (MST:US), won’t cede that market to competitors even as partners build the “lion’s share” of devices using Windows in the next five years, Ballmer said yesterday during an address at the Churchill Club speaker series in Santa Clara, California. The company recognizes “there’s an innovation opportunity” by collaborating across hardware and software, he said.
Microsoft is undertaking an overhaul of its product line meant to keep it relevant in the post-PC era. The company dominated the technology landscape during the heyday of the personal computer in the 1990s and much of the last decade, yet has been eclipsed in influence by a resurgent Apple and the rise of mobile devices taking the place of PCs that run Microsoft’s flagship Windows operating system.
“We really reimagined Windows,” he said at the on-stage discussion with Reid Hoffman, the chairman and co-founder of the online business network LinkedIn Corp. “The distinction between a PC and a tablet I think, at least in our ecosystem, completely goes away.”
Microsoft pushed out Windows division chief Steven Sinofsky this week as Ballmer pushes for more cross-product coordination to fight back against Apple and other mobile-device makers, people with knowledge of the matter said. Ballmer is putting in place a new team to start work on the next generation of products after the release of Windows 8, the Surface and mobile- phone software last month.
Sinofsky’s duties were reassigned to Julie Larson-Green, who will take charge of all software and hardware for Windows, and Tami Reller, who adds oversight of the Windows business to her marketing and finance responsibilities.
“The new team is fantastic,” Ballmer said.
On the Web, Google Inc. (GOOG:US) has made its pages hubs for many of Internet users’ activities, and its Android operating system powers many of the world’s mobile phones and tablet computers, markets Microsoft has tried for years to penetrate. Ballmer, 56, is trying to adapt in a computer industry landscape vastly changed from when he took over as CEO from co-founder Bill Gates in 2000.
In response to shifting trends, the Redmond, Washington- based company last month released Windows 8 -- the biggest change to its flagship product in nearly two decades -- designed around a revamped home screen featuring colorful tiles that launch programs and update users with current information from the Internet.
“With technology companies, you either move forward or you die,” Ballmer said.
On Oct. 26, the same day Windows 8 went on sale, Microsoft started selling Surface, its first foray into the computer market. The tablet, featuring attachable keyboards that double as covers, was designed by Microsoft and runs Windows RT, a special version for chips from ARM Holdings Plc -- and a break from the company’s traditional PC partners Hewlett-Packard Co. (HPQ:US), Dell Inc. (DELL:US) and Intel Corp. (INTC:US)
Ballmer said in an Oct. 25 interview with Bloomberg TV’s Cory Johnson that the release of Windows 8 and Surface is one of “three seminal moments” in his 32-year Microsoft career, standing alongside releasing Windows 95 and the advent of International Business Machines Corp.’s first PC in 1981.
Microsoft is relying on the new operating system to revive interest in the personal computer. The PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS ISuppli. That would be the first annual decline since 2001.
“Surface is a best-in-class product” and sets a high bar for PC makers to clear, said Rick Sherlund, an analyst at Nomura Holdings Inc. in New York. Sherlund, who recommends buying Microsoft shares, estimates the company can sell 2 million Surface computers in the fourth quarter.
Shares of Microsoft have underperformed the broader stock market the past five years, losing 21 percent of their value compared with a 6.6 percent drop in the Standard & Poor’s 500 Index and an 11 percent gain for the S&P 500 Information Technology Index. Fiscal first-quarter sales for the period ended in September fell 8 percent as sales of Windows and Office both declined.
Apple’s Macs, iPads and iPhones are replacing many of the jobs once done by Windows machines, and Apple has supplanted Microsoft as the center of gravity for outside software developers whose products make each platform more compelling. Apple said Nov. 5 it sold 3 million fourth-generation iPads and iPad mini models during their debut weekend.
Smartphone versions of Windows held just 2 percent of the market in the third quarter, dwarfed by the 75 percent share of Google’s Android and 14.9 percent for Apple’s iOS.
Microsoft is making plans for the possible creation of its own smartphone, according to people with knowledge of the company’s plans. The company on Oct. 29 introduced the latest version of its Windows Phone software that relies on the same underlying code as desktop and tablet Windows.
Microsoft, which has single-digit market share in smartphones, wants to get 10 percent to 15 percent share as its next step, Ballmer said. Windows-based smartphones have an opportunity to stand out because “all these phones look the darned same,” he said.
Ballmer said there’s an opportunity for Windows on smartphones and tablets since Android is “wild” and the iOS ecosystem is “controlled” and high-priced.
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