We never get much tech news on a Friday, but we do sometimes get business news about tech and today’s no exception. We have Intel’s earnings report, IBM’s new cloud investment, and also a comment by Juniper’s new CEO on the company’s directions. Let’s take a look at each and see what (if anything) we can learn.
Intel pretty much hit forecasts, its slight undershoot in profit coming from a larger reserve against taxes. It seems pretty clear from their numbers that the PC business is more complicated than doomsayers expected. In fact, there was significant strength at the high end of the PC chip line (i5 and i7) and desktop-configuration sales were up over 10%. So what’s happening?
The answer is that we’ve had three factors influencing the PC market all along. The one that gets the most ink is the tablet-and-smartphone overhang, and it was supposed to kill the PC. Clearly reports of the death were, as they say, greatly exaggerated. The second factor was the economic collapse of 2008, and we’re now in a cautious but real recovery, particularly in the US and Europe. The final factor is the issue of new benefits to drive new empowerment—productivity-driven spending gains have been negligible since 2002. That one is still real.
Where we are with PCs versus tablets or phones (in my view) is that consumers did indeed reduce their dependence on PCs when smartphones and tablets came along, and those who saw personal technology as an on-ramp to social networking found that the new stuff was better than the PC. That remains true today, but remember that the impact of tablets and smartphones was essentially to reduce PC TAM. Once you pull out the social-driven buyers, the remaining PC market isn’t much impacted by tablets or smartphones. Thus, we have already seen most of the overhang effect from that. Analysts who projected the overhang curve with a ruler or French curve overstated the length of the effect, which is probably the big reason why they were surprised by Intel’s numbers.
On the second point, businesses who have been holding back on refreshing aging “traditional” workstations and (to a lesser degree) laptops have now opened up as the economy recovers. Those buyers are the drivers of the desktop and high-end chip sales gains Intel reported. It’s this sort of refresh that drives top-end PC chip sales; consumers tend to buy models based on lower-performance chips for cost reasons. This factor and the overshoot in estimating tablet overhang effect explains everything about Intel’s quarter in my view.
The future is another matter, and that’s where our third market factor comes in. We see from the numbers that there are really two markets for PCs, the largely business-based buyers who demand power and accept a price has to be paid, and the consumers who demand price and don’t compromise on it for features. It doesn’t take a rocket scientist to realize that the latter market is going to commoditize and that Intel’s brand will be less meaningful there over time. Chromebooks and tablets with keyboards will erode the bottom tier of the consumer PC market over time, but it’s really the commoditization that’s the story. If Intel wants more sales and profit they have to sustain the business PC user.
That may be a challenge because the real opportunity for driving new benefits to businesses is in point-of-activity empowerment based on mobile broadband. Unless Intel can work with PC makers to figure out how to couple personal computers and not tablets to this mission, it will drive the business investment in personal technology toward mobile devices, and cut the growth of high-end PCs. That’s what will hurt the PC business, and Intel.
IBM’s decision to spend another $1.2 billion on the cloud is heralded by some as an indication that Big Blue sees the need to turn around. They may very well see that (it would be hard to miss, after all) but the problem is that it’s not spending money but making strategic investment that matters.
IBM’s current cloud strategy (SoftLayer) is a kind of left-handed PaaS approach, something that pushes IBM middleware through the cloud. From what enterprises have told me in surveys, the approach has some utility for failover and cloudbursting missions for IBM-based applications, but it’s not breaking new ground in terms of supporting cloud-specific applications. That’s a problem.
The only reason to take something that’s running today in your data center and stick it into the cloud is that the cloud is cheaper. Once you push past the limited opportunity presented by hybrid elasticity of resources, the only thing that drives further cloud usage is lower costs. If you’re targeting your own IT customer base (as IBM is) for your cloud opportunity, you’re winning less than you’re losing or the buyer is making a price-based move to increase costs not decrease them. Need I say how unlikely that is?
IBM needs to spend a rough billion on the expanded “web-service-middleware” approach that Amazon is following and that I’ve called platform services. Oracle’s deal with Verizon shows that most of the players in the industry now realize that the best way to promote the cloud is to add cloud-enabled services to IaaS by providing virtual interfaces (web services). Let the buyer write in whatever they like, but incentivize them to use platform services by making those services really useful in building cloud-specific apps. IBM, of all people, should be able to do this.
Juniper’s partner conference was new CEO Shaygan Kheradpir’s opportunity to speak to the market, particularly given the activist-hedge-fund attack on Juniper’s strategy. The result was mixed, in my view. On the hopeful side, he says he wants to make Juniper “dramatically better”, and that he wants Juniper not to get bogged down selling hardware and technology and focus instead on crafting solutions buyers value. He talks about “High IQ” networks, though, and that’s too much like a tag line to replace older tag lines with a similar meaning. He talks about networks that can “never go down”, which suggests that network intelligence has to focus on sustaining connectivity and availability, not building toward those “solutions” buyers value. A reliable network is a solution for a carrier, perhaps, but it’s simply an application requirement for an enterprise. The guy who controls the application value proposition, then, still controls the buyer and that’s not Juniper today.
In this “Elliott aftermath” period, Juniper is not signaling decisively on whether it will boost share price by “artificial financial means” as I’d describe stock buybacks, dividends, and cost cuts, or whether it will actually open new and better opportunities for itself. What is in Juniper’s DNA, if you go back to deep ancestry, is innovative designs and technology. What is in it recently is hype, myopia, and taking the easy way out. Which DNA will Juniper draw on? I don’t know yet. I don’t know if Shaygan Kheradpir does either.