IBM and Intel Report: What Does it Mean?

We now have some of the major tech leaders reporting with IBM’s and Intel’s quarterly calls, but I still don’t have quite enough to make a definitive comment on how tech will do for the quarter.  I do think there are some interesting points in both the IBM and Intel reports, though, and they at least point to the direction of future growth, or weakness, in both the companies and the computer business.

IBM, in our surveys, has been the most trusted and influential tech company, but they’ve been losing strategic influence at a small but steady rate for a year now, and I expect they’ll continue that in the spring survey this year.  The problem for IBM is that their success has come from a PORTFOLIO STRATEGY, meaning that they’ve had the products companies needed and then the professional services needed to back those products up and reap additional revenue and margins in the process.  Over the last couple of years, hardware has become a problem for IBM because it’s too competitive everywhere but the mainframe area.  With loss of hardware influence, it loses portfolio value, which threatens its ability to drive decisions and exploit future opportunity.

The loss of sales-level decision influence also puts a lot more pressure on strategic marketing, and IBM has been significantly less successful in articulating its position in key areas like cloud computing than it has in selling the same positions.  When portfolio weakness erodes sales credibility, only marketing/positioning can get it back.  That’s not happening as well as it should, and so IBM has paid a price.  It will continue to pay,  I think, through at least a quarter or two.

The first hope of exit from the strategic doldrums is the Pure stuff.  In a sales/tactical sense, Pure is really about making commodity systems into mainframe ecosystems.  The whole idea of Pure is to package, which means to create (in my terms) a portfolio.  At the same time, Pure elevates sales positioning to the marketing level, at least potentially.  You can’t talk about specific customer needs in ads, but you can talk about Pure-market-target segment needs.  So the good news is that IBM may have its problems solved by the end of the year.  The big “if” is the marketing and positioning.  The developments in the cloud are moving fast, and IBM’s competitors are looking better at the cloud story than IBM is.

With Intel, the challenge the company faces is the result of missing a critical point a couple years back.  Once you empower the PC base, you’re threatened by lack of total addressable market growth to offset competition and commoditization.  You also have to expect that as PCs mature, you won’t see replacement as fast.  All the signs and signals say GO TO CONSUMER ELECTRONICS FOR YOUR FUTURE, but what Intel did was stay with Microsoft, whose lack of agility made it a poor bet.  Intel needed to build chips for smartphones and tablets based on the prevailing ARM architecture a long time ago, and it needed to get aligned with the rapid changes in that space.  Now it’s almost certainly too late for anything but catch-up.

The key to whether Intel can catch up in the consumer electronics chip space is now the cloud.  Servers run one end of the cloud, and consumer electronics the other.  If you can demonstrate that there are cloud-specific values in both spaces you can win in both based on a single strategy.  That strategy isn’t owned by Intel’s chip competitors no matter whose devices they’re inside at this point, because the cloud isn’t the convincing driver of either servers or appliances.  It will be.  The good news is that Intel has demonstrated it can ramp up a new chip family much faster than before, but that’s going to be helpful only if there’s something they can rush to market, cloud-wise, via this newly found speed.

We’ll be starting to see key network equipment vendors reporting next week, and I’ll be looking for signs that these guys see their own problems in a “cloudy” light.  As I blogged before, you need revolutionary revenues to fund revolutionary capex.  If operators are going to spend enough to elevate even some boats, they will have to see a path to earning more from their spending.  Right now, the cloud is their greatest hope for near-term value, because it can be sold directly to enterprises in the form of IaaS and PaaS, to partners to create SaaS, and in SaaS form to consumers and SMBs.  Margins on the cloud, particularly for SaaS and PaaS, are higher than they are for broadband Internet access, so ROI is better.

There are two things you need to be a cloud giant.  First is a specific vision of what the cloud’s “service layer” would look like, as a stack and as an operations process set.  Second is a vision of SDN, OpenFlow, that ties the cloud flows back to network devices.  If you look at the vendors out there, we have Alcatel-Lucent who so far isn’t showing either of these things, Cisco who shows both, Ericsson who has OpenFlow without cloud, Juniper who has neither, and NSN who has neither.  While the cloud isn’t the only thing that could propel these vendors (content and mobile monetization still have a higher operator priority), I do think that all the signals show that the cloud is easier to turn from goal into project (look at the TeleSonera announcement on clouds and gaming) than the other two, and so in 2012 cloud success may be the only way to advance a network vendor’s cause.


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