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Originally published Wednesday, June 6, 2012 at 9:00 PM

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HTC said to be shut out from Microsoft's tablet software rollout

Microsoft locked out HTC from the development of products using the newest version of its operating system on concern that HTC doesn't sell enough devices or have ample experience making tablets, people with knowledge of the matter said.

Bloomberg News

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HTC is being shut out of the introduction of Microsoft's next Windows software for tablets, people with knowledge of the matter said.

Microsoft locked out HTC from the development of products using the newest version of its operating system on concern that HTC doesn't sell enough devices or have ample experience making tablets, said the people, who asked not to be named because negotiations between HTC and other companies are private.

Microsoft's decision will keep HTC, maker of the first Google-branded smartphone, from participating in the electronics industry's latest attempt to erode Apple's lead in tablets. The Taiwanese company, which has its U.S. headquarters in Bellevue, is also facing shortages from chip-maker Qualcomm, highlighting the challenge of competing with Apple and Samsung Electronics — two companies whose dominance in manufacturing and software are increasingly marginalizing smaller rivals like HTC.

"Every consumer knows about Samsung's Galaxy platform and the iPhone, and you are starting to see consumers coalesce around them," said Matthew Thornton, an analyst at Avian Securities, who has cut his rating on HTC to negative. "Things just get worse from here. It's a very bleak outlook."

Microsoft plans to release its next Windows operating system, the first to run on chips with technology from ARM Holdings, in time for the holiday shopping season. The ARM version of the new software, designed for tablets that compete with the iPad, is called Windows RT. Other tablets and computers will be made using chips based on Intel's technology. The software, also called Windows 8, will appear in devices from companies like Toshiba and Asustek Computer later this year.

HTC is a strong partner now and for the future, said Microsoft spokesman Frank Shaw in an emailed statement. He declined to discuss specifics. HTC intends to support future versions of Windows and isn't commenting on the details of its product plans, said Sally Julien, a U.S.-based spokeswoman at HTC, in an emailed statement.

Microsoft, which has tightly controlled the number of ARM- based devices it is supporting at first to ensure quality, opted not to work with HTC after initial discussions with the company, said the two people familiar with the matter. Microsoft decided to work with other vendors that had greater sales volume and more tablet experience for the first round of devices, the people said.

HTC engineers wanted to build a Windows device with a customized home screen that would be distinctive to its devices, as manufacturers are allowed to do with Android. Microsoft refused, said the people, and HTC was left off the list of companies the software maker provided with early versions of the software.

HTC may release a Windows device later, in a second round of products to come next year, one of the people said.

The situation underlines the shift in the relationship between Microsoft and HTC, which once relied on each other to prop up early efforts in the mobile-phone market. The two companies started working together on Microsoft's mobile phones early in the last decade and the first Windows-based phone was manufactured by HTC. At the time, Microsoft had virtually no experience in the area, and HTC was a maker of unbranded generic phones for other companies.

HTC recently has placed more emphasis on its better-selling Android phones, and Microsoft has forged a closer relationship with HTC competitor Nokia.

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