PC Fixation Blinds Wall Street To Strategic Pivots By Intel, Microsoft: Thriving In The Post-PC World

By | April 21, 2015

It’s a tiresome routine. Every quarter Wall Street analysts calibrate their earnings estimates for Intel Intel, Microsoft Microsoft, Micron and other ‘old tech’ companies according to the latest IDC and Gartner Gartner PC sales figures. PC sales down? Intel and Microsoft are sure to take a beating. It’s as if these are still monolithic businesses stuck in 1995. Yes, Intel did have to reset expectations a month before the earnings call due to soft PC sales, but the WinTel collective has moved well past its dependence on Windows licensing and laptop Pentium shipments. Similar stories play out at other firms that grew out of the PC era, where NVIDIA NVIDIA, with its deep learning and autonomous vehicle efforts, Micron, via enterprise SSDs and mobile memory, and, of course, Apple have pivoted to new businesses or invented entirely new product categories. Still others, like AMD have been left behind as alternative suppliers like ARM, whose revenues rose 14% in the last quarter, capitalize on generation mobile.

Indeed, one of the most interesting and significant trends in the tech industry is the adaptation of established, old tech stalwarts to the post-PC world defined by mobile, social, cloud and big data analytics. For the most successful, PC sales, or associated client-server enterprise infrastructure, are much less important to their strategies and long-term viability. For others, like Dell, EMC and HP, transformative creative destruction is a work in progress.

WLANL_-_MicheleLovesArt_-_Tropenmuseum_-_Shiva_Nataraja_(6274-1)

As I detail in this column, the long-term future of tech industry stalwarts is determined by those best able to adapt and unafraid of creative destruction that undermines legacy cash cows. The contrast in recent earnings results from Intel and AMD illustrate two increasingly divergent paths.

Intel’s recent first-quarter earnings release clearly demonstrated that the company is much less dependent on the vagaries of the secularly declining PC market than many give it credit for. Expect similar strength from Microsoft’s commercial business, particularly its cloud services, when it reports on the 23rd as it too has become much less dependent on the PC sales cycle. Unlike former WinTel competitor AMD, which issued a disastrous report on the 16th that lopped 14% off its stock price, Intel, Microsoft and other stalwarts of the PC era are successfully executing large, complex strategic transformations to a world of smartphones, connected devices and cloud services.

Intel Q1 2015 Operating Segment Results

The column continues to review Intel’s focus on data center infrastructure and IoT and Microsoft’s successful pivot to cloud services. However if Intel and Microsoft illustrate companies successfully executing the post-PC, mobile-cloud transition, AMD is an example of one that didn’t. Although the company has made plenty of noise about low-power, hyperscale servers tuned for cloud customers, its ARM-based road map just slipped a full year and it effectively admitted defeat in the server business by announcing plans to jettison SeaMicro.

AMD-Operating-Inc-2

AMD Operating “Income” is Mostly Negative

 I conclude with the lesson that companies that persist in protecting legacy cash cows risk long-term survival on the altar of short-term profits. Intel and Microsoft hesitated to cannibalize existing businesses as the mobile/cloud era loomed and are still playing catch up.  Those that dithered, like AMD, BlackBerry, HP or even RadioShack, face difficult and sometimes futile fights for survival.