Ballmer: Hardware Key To Microsoft's Future

Surface may be just the beginning. Microsoft CEO Steve Ballmer told investors at the company's annual shareholder meeting that pressure to innovate and get new products to market faster means Microsoft will need to produce more of its own hardware going forward.

Responding to a shareholder who questioned why the company has fallen so far behind in the tablet market, despite the fact that chairman Bill Gates, present but silent throughout the Q&A session, showed off a tablet prototype more than a decade ago, Ballmer said Microsoft may have been too reliant on external hardware makers to develop the product.

"Bill did hold up a tablet a number of years ago," Ballmer said. "And, not that we don't have good hardware partners, but sometimes getting the innovation right across the seam of hardware and software is difficult unless you do both of them," Ballmer said at the meeting, held Wednesday in Bellevue, Wash.

Referring to the company's new strategy of building its own Windows 8 tablets under the Surface brand, Ballmer said "maybe we should have done that earlier, maybe [Gates'] tablet would have shipped sooner."

Ballmer then left little doubt that Microsoft is no longer content to be solely reliant on third-party PC manufacturers for its success. "What we've said to ourselves now is that there is no boundary between hardware and software that we will let build up as a kind of innovation barrier."

[ Windows 8 early sales numbers are weak. Should Microsoft pull a Coke and introduce Windows Classic? ]

Ballmer's comments are sure to add fuel to rumors that the company's next hardware product will be a self-branded smartphone. Digitimes, an overseas publication that tracks Asian component manufacturers, this week published a report that said Microsoft has contracted with iPhone-maker Foxconn to produce a smartphone. Microsoft has not commented on the report.

Another sign that Microsoft is looking to become a major player in hardware is that it's looking to hire individuals with experience in hardware manufacturing and supply-chain management. On Thursday, the Microsoft Careers Twitter feed carried a tweet saying, "At @Microsoft, we're more than just software. Come show us your Hardware Engineering talents." It included a link to Microsoft's hardware engineering jobs page, which listed numerous open positions.

Microsoft's hardware designs could bring it into conflict with PC OEMs, on which it still depends for the bulk of its Windows revenues. Lingxian Lang, China operations manager for Acer, recently said publicly that Redmond's plan to compete with partners would ultimately see it eating "hard rice."

Meanwhile, Microsoft has revealed more details about Surface Pro, the version of Surface that will run full-blown Windows 8 Professional and legacy Windows applications. The notebook-tablet hybrid will hit stores in January, starting at $899 for the 64-GB version and $999 for the 128-GB version.

Microsoft released Surface RT, which runs a pared-down version of Windows 8 called Windows RT, on Oct. 26. Surface RT runs an ARM-based Nvidia Tegra 3 chip that promises low power consumption and long battery life, but it will run only pre-installed Microsoft software and apps downloaded from the Windows Store. Surface RT starts at $499.