Narrative: The Decline of PCs

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    ★ Microsoft Introduces Windows 10 S, a Streamlined (and “Soulful”) Version of Windows (May 2, 2017)

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    ★ Microsoft Unveils Surface Laptop, an Odd Mix of Power and Constraints (May 2, 2017)

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    Intel Reports Good Growth and Higher Margins, But Data Center Falls Short (Apr 28, 2017)

    Intel had a pretty good quarter for the most part, expanding margins as several of its divisions performed better off the back of rising prices and lower unit costs. The only division that didn’t grow was the security division (home of McAfee), which Intel has already announced it intends to spin off. Client Computing, home of Intel’s traditional PC business but also newer areas like tablets, phones, modems and so on, grew by 6%, though in large part because of rising prices (up 7% year on year) rather than volumes (down 4% year on year). The trend in Data Center, which makes up a little under a third of revenue, was similar, with volumes down 1% but prices up 6%, driving overall growth, though at a slower rate than in the past, and its margins have also fallen recently as it invests in new processes which should pay dividends over the longer term. Intel’s non-volatile memory group benefited from the release of Intel’s new Optane memory products, which have contributed to very rapid growth, but which has also plunged that division into the red because of heavy investment in the new processes and technology.  IoT is also growing at a decent clip, though it’s much smaller than the two big divisions. One other division is Intel’s Programmable Systems Group, which was formed when it acquired Altera, which made filed-programmable gate array (FPGA) technology. That’s growing at a decent clip and is also now profitable, which is good progress from when the acquisition closed. Overall, Intel’s two main businesses are performing well for it at the moment, though the fact that it’s having to invest heavily to remain competitive in several key areas has held margins down below where they might be.

    via Intel (PDF)

    ★ Microsoft Misses on Revenue as Hardware Weakness Partly Offsets Cloud Strength (Apr 27, 2017)

    Microsoft was one of numerous big tech companies that reported Q1 2017 financial results (its fiscal Q3 results) this afternoon, and the only one of the big three to miss on revenue. That revenue miss was largely due to a shortfall in hardware revenue as Surface had its first big year on year decline in a year and a half due to a lack of new mass market hardware, and phone revenue dropped to essentially zero. However, these two businesses together make up just 4% of Microsoft’s revenue, which continues to be dominated by software and to an increasing extent services, while growth is dominated by the move to the cloud. Microsoft’s cloud revenue run-rate is now at an annualized $15.2 billion, compared to Amazon’s $14.5 billion in actual annual revenue, though Microsoft’s definition of cloud here is far more expansive than Amazon’s. The productivity business had a particularly strong growth quarter at over 20%, while the Intelligent Cloud segment also improved a little to just over 10%. But margins continue to  fall overall as the newer cloud services generate less profit than Microsoft’s old massively profitable software business did, and that picture isn’t likely to change. Microsoft is growing again after both lapping the introduction of Windows 10 and the revenue deferral associated with the new business model, and also getting past the biggest drops in the phone business, but it’s mostly doing so by doubling down on enterprise products and services while its consumer and hardware businesses mostly continue to struggle to find growth.

    via Microsoft

    ARM-Based Windows 10 PCs to Arrive in Q4 2017 (Apr 21, 2017)

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    Intel Kills its Developer Forum, its Big Annual Event (Apr 17, 2017)

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    Gartner Says Worldwide PC Shipments Declined 2.4 Percent in First Quarter of 2017 (Apr 12, 2017)

    Yesterday, we had IDC’s PC numbers for Q1 2017, and today we have Gartner’s. As usual, they show pretty different trends (IDC the first growth in five years, Gartner the lowest total shipments since 2007), because the companies define the market in different ways. Whereas those IDC numbers were for “traditional” PCs, these Gartner numbers include what some call “detachables” and Gartner calls “ultra mobile premiums” such as the Microsoft Surface. Interestingly, though, whereas in the past those detachable and convertible devices have led Gartner’s numbers to grow faster than IDC’s, the situation now appears to be reversed. That’s interesting, given how hot this category has been and how much it’s helped the overall PC market in the past couple of years. My guess is that the trend will go back to its previous pattern the rest of the year. The two companies do agree on some trends though: HP had a great quarter, particularly in the US, and component shortages are driving some interesting trends. However, whereas IDC saw the latter driving higher shipments in Q1 to get ahead of price increases, Gartner focuses on the downward pressure on shipments the component shortage is likely to cause in the rest of the year due to price increases. IDC and Gartner also agree that the “other” category is suffering badly as the big names consolidate share.

    via Gartner

    Intel Security finally spins out as independent McAfee – VentureBeat (Apr 4, 2017)

    This makes tons of sense – there’s never been any meaningful synergy between the core Intel chips business and the McAfee business, and separating it off frees Intel up to focus entirely on its core, where it has plenty of work to do already given the maturity of the PC industry, its struggles to break into mobile and other newer areas, and the new threats in its data center business.

    via VentureBeat

    Android overtakes Windows as the internet’s most used operating system – TechCrunch (Apr 3, 2017)

    This is an interesting counterpart to last week’s item about revenue from Android apps surpassing revenue from iOS apps in 2017. That news had been a long time coming, because Android has long since been way out in front of iOS in terms of user numbers, but revenue for developers has lagged anyway. This week, the news from Statcounter, which measures online traffic, is that Android has surpassed Windows as the source of the greatest share of online traffic by operating system. That, too, is likely a lagging indicator for the number of people using Android versus the number of people using Windows, but for a different reason – much of online usage on mobile is in apps, whereas on a PC it’s almost all web-based, so PCs will always over-index on web usage relative to mobile devices. There’s a good chance that Android has hundreds of millions more users than Windows already.

    via TechCrunch

    Microsoft Pledges to Use ARM Server Chips, Threatening Intel’s Dominance – Bloomberg (Mar 8, 2017)

    The data center business at Intel accounts for almost a third of its revenues, has high margins, and has been growing considerably faster than its Client Computing segment (which includes PCs, tablets, and mobile phones). And it’s done well in large part because of commitments from big players like Microsoft to using its chips in their data center servers. But now Microsoft is saying it plans to switch to using ARM-based chips made by Qualcomm in its Azure server infrastructure instead, which could put a dent in Intel’s future growth and reduce its share from the 99% cited in this Bloomberg article. This isn’t imminent – it’s a step on a path Microsoft is committed to, but hasn’t been rolled out to any customer facing servers yet. But ARM-based chips have been cited as potential substitutes for Intel chips in server farms for some time now, so this could be the beginning of a dramatic shift in the next few years. That’s obviously terrible news for Intel, for which the data center business has been a useful source of growth and margins in recent years. Meanwhile, this is such a small business for Qualcomm today that it doesn’t even get mentioned in its quarterly earnings materials, but that could obviously change rapidly going forward.

    via Bloomberg