Microsoft has announced its new, 2nd generation XBox. It's a lot more than a game console, and can do many things that a home PC can do--play movies and CDs, surf the Web, and display photos on your television. Although Microsoft is being fairly quiet about these features, the new XBox has more capable hardware than most Wintel personal computers. And it's quite capable of doing anything a Dell or HP computer running Windows can do.
So Microsoft is now in direct competition with its two biggest customers, who buy millions of copies of Windows and Office per year. Why is Microsoft doing this? Because they are losing the battle, and they have to capture customers somehow. Apple totally dominates the music business, and Yahoo's new subscription service is likely to gather up what crumbs are left in that market. Industry pundits are pretty confident that Apple's next foray will be to do for movies what they have done for music (and I agree). Microsoft has no answer to that, either. Home entertainment is driving the computer business, and the market for spreadsheets and PowerPoint has been flat for years. Microsoft has very little to offer in the new and booming music/video/entertainment markets, where all the money will be for the next several years.
So the only way that Microsoft can see to get back and retain control of customers is to get into the hardware business. Even at the risk of alienating their biggest customers. But if Microsoft is in trouble, Dell and HP are in worse shape. They really have no alternative to selling Windows computers. Both sell a few computers with Linux, but it amounts to pocket change for the companies.
IBM saw this coming years ago, and made the switch to Linux as the core of its business. But HP and Dell don't have an exit strategy, so they will have to continue to buy from Microsoft even as the company tries to take customers away from them.
One last loser in this is Intel. IBM makes the PowerPC chips that power its own computers and servers, and is the primary supplier to Apple. Guess what chip is used in the XBox? That's right, it's a PowerPC chip. Microsoft has been at the mercy of Intel for the past twenty years, and has had to continually adapt Windows to run on Intel hardware. But Microsoft has freed itself of that problem (the PowerPC is available from several suppliers). So Apple's computers and servers run on the PowerPC, IBM computers use the PowerPC, and now the XBox runs on the PowerPC. Intel is in trouble with its highly profitable processor line.
And one last thing.....guess what Microsoft used to develop the XBox software while the hardware was under development? Yup, it was Macs.