The news this week that PC sales dropped by double digit percentages and to a level not seen since 2006 sent shudders down the halls of OEMs and chip suppliers. Are we entering a final death spiral as opposed to the gradual decline that most expected? Perhaps there is another explanation. From a distance, it appears that the mobile shift, not only caught Microsoft and Intel flat footed but also playing catch up with Marketing leading the way with “Futures.” The normally disciplined product rollouts have turned into a game of talking about game changing products and as a result the two companies are following the road Adam Osborne took 30 years ago. Corporations, meanwhile, are sitting on the sidelines waiting for the two to synchronize the platform. The longer this takes the greater the chance that Wintel unravels.
Before there was Michael Dell, there was Adam Osborne. In April 1981, Osborne launched the first commercially based portable computer, the Osborne 1 at $1795, which successfully ramped to 10,000 units a month. At the height of sales, in early 1983, he let it be known that two, new more advanced computers were on the way. Customers decided to wait and the rest as they say is history as sales dried up and bankruptcy ensued in the latter part of the year. Adam Osborne forever gained infamy in the realm of running a high tech company. The standard rule of thumb would be the phrase: “Don’t Osborne yourself.”
While many have predicted or wished the fall of Wintel, their more than 20 year run of success can be summarized as creating a standard and riding the diminishing returns of the components and margins of OEMs. As we entered this decade, the only two items that were left to be squeezed were the O/S and the processor. This steady state would have prevailed if not for the smartphone and tablet catalyst that offered entirely new platforms based on a cheap processor and “Free” O/S with Applications that were priced as low as $0.99.
Microsoft and Intel responded in a way that diminished each other and that of the combined platform that generates most of its sales and income with the business world. With Windows 8, Microsoft tried to extend the platform to operate on all PCs and mobiles while supporting x86 and ARM processors. It was a huge undertaking. Intel decided to pursue an O/S independent strategy with many of their internal engineers porting and optimizing Android to x86. To remain relevant in the mobile conversation dominated by Apple and Google, the two had to go public with roadmaps going out several years and thus they created an Osborne effect on their own products and breaking the synchronicity with each other that is crucial to selling into the corporate world.
Intel’s ultrabook initiative in 2012 was symbiotic of the breakdown that led to a significant miss in sales. At the beginning of last year, Intel had counted dozens of new designs and expected rising sales in the second half that would lead to even greater sales in 2013. However, the ultrabook platforms came to market late and at prices that were high relative to the growing, economical field of tablets, capped with the October launch of Apple’s $329 iPAD Mini. Intel compounded their ultrabook problem when they pre-announced Haswell as a much lower power successor to Ivy Bridge that was guaranteed to deliver 10 hours of battery life. Corporations, who are naturally conservative, decided they could wait another year until Haswell arrived. In just the last few weeks, though, Microsoft has decided to leak details of the next version of Win 8 called Blue, which is designed to fix problems with Win 8. It is almost guaranteed that it will not synch with the Haswell launch this summer. You see any pattern here? A drip, drip, drip game is a losing situation for both.
The lack of a Wintel alignment will increase the pressure that both must ratchet down prices to spur sales. Neither partner has wanted to provide concessions for fear the other one will become dominant in the relationship. For three years, Apple has used the crossover point of the iPAD and Mac Air as a test bed to determine what a computer users need is in relation to price. It now happens to be the intersection that challenges the Wintel value prop of an Ultrabook with a $60 O/S and $200+ processor up against an iPAD with a $25 processor and “Free O/S” and Apple’s x86 powered MAC Air. This is where the corporate battle will play out the next two years.
Apple’s customization of its ARM processor (A6) combined with their alignment with the iOS requirements is similar to how Wintel operated in the 1990s. It is a powerful model that works when everything grows and there is performance headroom to cannibalize. If Microsoft and Intel decide to work separately and in an Osborne fashion, then it is likely that the PC decline will accelerate as they become susceptible to a divide and conquer strategy imposed by its competitors.
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