We are defined by how we use our power. - Gerry Spence, "The Rat Hole"
Nothing brings forth derision from Silicon Valley veterans quite like the mention of Microsoft or Intel. It's fair to say that the survival of Advanced Micro Devices and the growth of open source software over the last 20 years are both heavily indebted to the torrent of enmity which the Wintel duopoly has inspired.
Disappointment and frustration with their products and irritation over clumsy, transparent attempts to extend & enhance their quasi-monopolistic status have kept the fires of resentment and suspicion stoked over the years in the hearts and minds of Technology workers & enthusiasts. Wintel's behavior has also fed the anxieties of executives across a broad range of industries who feared the long term effects that the duopoly's domination of the technology industry would have on innovation and costs. Companies even formed multi-member alliances around a variety of industry issues and standards for the express purpose of thwarting Wintel.
Yet despite three decades of rancor and bitterness from legions of individuals and scores of corporations, a number of high profile legal challenges from American and European governmental authorities and a fair number of new product rollout disasters (anyone remember Windows Vista?), both companies have survived thru it all. Today, Intel and Microsoft are still among the largest and most profitable firms in High Tech. In some sense, Wintel seems akin to a two-headed monster out of mythology that cannot die.
Yet High Tech is also a monster of sorts, continually transforming in unpredictable ways and nonchalantly devouring its own young. The continued decline of the PC market and the rise of Mobile Computing have renewed concerns over the long term viability of Intel and Microsoft. ARM Ltd effectively owns the mobile computing, consumer electronics and communications markets, with chips employing its embedded CPUs outshipping Intel over the last half decade. The continuing popularity of Linux represents a long term vulnerability for Microsoft for all of its software licensing business in consumer, enterprise and game console segments, while Apple's iOS and Linux's mobile offspring Android have effectively shut Microsoft out of the Mobile Computing market.
Let's start with the financial results and then look over each company individually. The graph below starts at Q1 2008 and has been updated all the way thru Q1 2014.
Whither I know not; but the hour's gone by
When Albion's lessening shores could grieve or glad mine eye. - Lord Byron, "Childe Harold's Pilgrimage"
Microsoft - The dependency on consumer spending is starkly evident in the yearly holiday season spike to the company's revenues. One can also observe that there was organic growth after the holidays in both 2010 and 2011. However, the same cannot be said for 2012 and 2013, with the latter year showing a distinctly unsettling trend.
Despite the non-holiday quarterly revenue softness of the last two years, the overall direction does appear to be up and to the right. What dampens this outlook, though, is the effect of the forced obsolescence of Windows XP to the Q4 2013 and Q1 2014 revenue numbers. Q2 results will be pivotal.
On the bright side, Microsoft seems to have at least partially decoupled itself from the PC market. It is also trying a lot of new things: the Azure cloud service, the Office 365 subscription model for enterprise, the XBox One (an impressive functionality upgrade from the highly successful XBox 360), the Surface tablet, the acquisition of the Nokia mobile phone business, internal work on VR and continued efforts with Bing.
Not all of this is working quite as planned. Surface has been a bomb. Despite having trounced the PS3 with the XBox 360 in the game console market, the XBox One release has seen Microsoft reverse positions with Sony, as the PS4 has achieved both higher sales and a faster growth rate.
There has been some progress with Bing and Azure. Attempts to compete with Android in the mobile phone OS market with Windows Phone have been encouraging, though the total market share and growth objectives are quite modest (Microsoft is targeting a 2.75% market share.)
It cannot be said that Microsoft isn't trying to break out of its chains. They should, in fact, be lauded for their efforts. The company seems to recognize quite clearly that they are no longer in the driver's seat in High Tech and that the PC market is a road to nowhere for them. Despite some high profile failures, criticism should be tempered by the realization that there can be no true learning without experiencing failure. The long term outlook remains uncertain and short term financial performance is likely to be disappointing, but evidently Microsoft is not content to follow the Computing market into senescence, as it has made it clear that it will continue to aggressively search for a new beginning.
Men's fortunes are on a wheel, which in its turning suffers not the same man to prosper for ever - Herodotus
Intel - Unlike its 30 year partner in the duopoly, Intel's fortunes continue to be inextricably tied to the PC market. After recovering from the 2008 downturn, the company's revenues peaked in Q3 2011 and have entered a consistent and gradual declining trend since then.
The fact that Intel's revenues have not retreated in complete lockstep with the PC market is a testament to the company's skills in design and, above all, manufacturing. AMD has been definitively crushed in the PC CPU wars and does not seem interested in returning to the fight. Furthermore, it was Intel that was first to market with a commercially viable 14nm process node - an achievement that was all the more impressive considering the competition: TSMC and Samsung.
Nevertheless, the long term prognosis for Intel continues to be poor. It still seems unable to branch into any products other than CPUs or into markets other than Computing to any substantive extent. Atom has failed to establish a genuine presence in mobile computing. Consumer and Communications system products use ARM-based applications processors.
As price competition intensifies in the PC segment, vendors desperate to find further cost reduction measures may actually provoke ARM into adopting hyperthreading and compel Microsoft to port Windows and Office to the ARM architecture. Such a possibility should not be dismissed out of hand - after all, ARM and Microsoft have been steadily building a relationship over the last 5 years, and there have been rumors that ARM might integrate superscalar and multithreading techniques into a more advanced V8 64b design and create a full hyperthreading CPU. With the costs of its own fabs weighing it down, such an event would prove catastrophic to Intel.
At this point, it looks like only a miracle can save Intel. The company seems to be firmly on the path cut two generations ago by once mighty juggernauts such as US Steel and the Penn Central Railroad, headed either towards irrelevance or oblivion.
In Part 3, we'll look at some leading companies still struggling to wrestle value out of silicon - The Stone Masons.