Government // Mobile & Wireless
Commentary
1/20/2012
01:14 PM
Paul McDougall
Paul McDougall
Commentary
50%
50%

Microsoft, Intel Face Their Kodak Moment

Unless they embrace radical change, the once dominant Wintel partners will follow the photography giant's unenviable path into decline.

Just over a decade ago, Eastman Kodak faced a tough choice--continue milking its highly profitable but shrinking film business, or embrace the digital revolution, which back then was a niche but clearly the way of the future. Kodak chose wrong and ended up on a path that ultimately led it to its bankruptcy filing Thursday.

Intel and Microsoft now confront a similar dilemma. Will they learn from Kodak's mistakes and commit to painful but necessary change, or follow Kodak into decline?

Better than expected fourth quarter reports released Thursday can't hide the problem. Microsoft and Intel beat the Street's dumbed-down expectations, but their filings revealed that sales of products core to the once formidable Wintel alliance are under pressure as consumers and businesses embrace tablets and smartphones powered mostly by components made by younger, more agile rivals.

Windows sales were down 6% year-over-year. Intel's revenue from chips and related PC components was, surprisingly, up 17% compared to last year. But they were down 4% from the third quarter, despite the fact that Q4 includes the supposedly robust holiday shopping season. The numbers led analysts at Cannacord Genuity to keep a hold rating on INTC.

"We see PC demand remaining weak due to competition from tablets," Canaccord's Bobby Burleson noted in a report Friday.

The problem isn't that Intel and Microsoft's execs are blind to the industry's glaringly obvious trend toward mobility. It's that, like Kodak and its film business, they are addicted to squeezing every last dime of profit from legacy technologies, at the expense of true innovation. Microsoft has failed to produce a legitimate media tablet platform two years after Apple launched the iPad.

[ Learn more about the controversy and the compromises tablet manufacturers may have to make. Read Windows 8 Tablets Overpriced Thanks To Intel? ]

Windows is getting a makeover with Windows 8 to make it more tablet-friendly, but it's still Windows. And OEMs have spoken loud and clear: Windows is about the last OS they want running on their mobile hardware. Yet Microsoft CEO Steve Ballmer is undeterred.

"I'm glad we've got Windows," Ballmer said earlier this month at CES Las Vegas, where Microsoft made what it said would be its final appearance.

As for Intel, its mobile Atom chips are in a number of ways just a lite version of the x86 architecture, which on PCs still needs a windmill-sized fan just to keep from melting down. "They have taken some designs that were never meant for mobile phones and they've literally wrenched those designs and put them into a power-performance space which is roughly good enough for mobile phones," ARM CEO Warren East told Reuters.

He's obviously biased, but in this case that doesn't make his comments any less true. Sales of Atom chips were down an alarming 57% year-over-year in the fourth quarter.

Intel and Microsoft are hoping that so-called ultrabooks will bridge the gap between PCs and tablets until they can produce their own slates, but don't bet on it. Tablets demolished the netbook market and will likely impose a quick death on ultrabooks, especially given an average price of about $1,000. "Ultrabooks won't stimulate consumer demand until price points come down and touch is featured," said Canaccord's Burleson.

Which brings us back to Kodak. The company from the mid-90s was ruled by a succession of conservative CEOs who were loath to acknowledge digital technology's erosion of the film business. "Kodak was late to recognize the problem, slow to react, and then went down the wrong innovation path," noted BusinessWeek, in a 2006 story.

To ensure they don't end up on the same road, Intel and Microsoft need to embrace mobile and build new products from the ground up that are designed with portability in mind, first and foremost. If that means starting from scratch, so be it.

Ready to catch the Metro? Windows 8 is a major shift, with features borrowed from desktop gadgets and mobile devices, and it brings a slew of new paradigms for developers. Our report, IT Pro Impact: Windows Developer Road Map, shows you what you need to know. (Free registration required.)

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
TreeInMyCube
50%
50%
TreeInMyCube,
User Rank: Apprentice
1/31/2012 | 5:19:16 PM
re: Microsoft, Intel Face Their Kodak Moment
The computer industry has many technologies that disappear (floppy disks) and some that singificantly decline, but don't die (mainframes). I believe that desktop and notebook PCs (not netbooks or ultrabooks) fall into the second category. There will still be a subset of users, such as CAD designers or architects, who need larger screen real estate than a smartphone or tablet can provide. The business model changes, the sustaining economics change, and the number of vendors changes when the user base shrinks this much -- for sure. One could even argue that a tablet + docking station (Bluetooth keyboard, external monitor) might even address the needs of these users someday. But I don't think that PCs will ever fully disappear the way that Instamatic and Polaroid cameras have.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Tech Digest, Dec. 9, 2014
Apps will make or break the tablet as a work device, but don't shortchange critical factors related to hardware, security, peripherals, and integration.
Video
Slideshows
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
Join us for a roundup of the top stories on InformationWeek.com for the week of December 14, 2014. Be here for the show and for the incredible Friday Afternoon Conversation that runs beside the program.
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.