Microsoft acknowledges that mobility is a risky business

Software monolith's annual 10-K filing lays bare how much ground vendor has to make up on Apple and Android

Microsoft's annual 10-K report reveals that the software giant is acutely aware of the ground it has to make up in the mobile device world and the risks associated with becoming a hardware player.

Under the "Risk Factors" section of the recent filing, the vendor cites the dangers inherent in developing a "competing vertically integrated [hardware and software] model" to go up against Apple with its Surface tablet device.

"Our competitors have been in the market longer and in some cases have established significantly large user bases. Efforts to compete with the vertically integrated model will increase our cost of revenue and reduce our operating margins," says the report.

The 10-K goes on to detail just how big a threat the rise of mobile computing devices poses to Microsoft's long-standing revenue streams, and how far the Windows maker has to travel to catch up with Android and Apple.

"Users may increasingly turn to these [mobile] devices to perform functions that would have been performed by personal computers in the past," explains the report.

"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. In addition, our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform."

Microsoft acknowledges that to compete effectively with its rivals, it must attract more apps developers and ensure it can offer consumers high-quality apps.

"Efforts to compete with [others'] application marketplaces may increase our cost of revenue and lower our operating margins," says the 10-K.

All publicly listed US companies are required to file a 10-K form with the Securities and Exchange Commission at the end of each fiscal year. The submission should provide a detailed breakdown of a company's performance and the key opportunities and challenges it faces in the year ahead.