And they continued to believe that even when Apple demonstrated conclusively that people would go out of their way to buy Apple hardware, rip off the Mac OS that they'd paid for, and install Linux/Windows on it.
Why is it obvious to Microsoft that the Surface Pro, or the SurfaceBook, is a valid addition to the PC hardware marketplace, but it wasn't obvious to any of the many competing OEMs?
Does Microsoft consider it a loss-leader reference design?
If it's been profitable, why hasn't anyone else in the PC space copied it?
You answered your own question. The OEM's "ruthlessly cut the cost of production" too far and thereby damaged the PC brand.
This "ruthlessly" cutting of costs would have been survivable, however with Apple attacking from the flank with the iOS/app model, the PC makers were/are now in an even deeper hole.