Conventional wisdom would have an industry with few competitors and commodity products to be rather dull, but 2008 was anything but dull for the major players in computing hardware.
We’ve seen big names toppled, others fall from grace, and some reborn as others wither or stumble. Even in sectors with just two competitors, competition remains fierce and brutal, with no room for complacency.
As a result, there’s no room for error. Even as these guys make increasingly complex parts, they have less time in which to do it. That’s offset by the fact these companies have growing development teams, which helps, but still puts them under the gun.
This year, the industry found itself at the mercy of the economy, and next year is looking very painful for everyone. It’s not a matter of if, but how bad it will be.
One of the biggest shifts all year was the crossover to mobility, leaving desktop PCs in the dust. Over the years, market research firms like IDC and Gartner have predicted that eventually, laptop sales would surpass desktop sales. Desktop sales had been trailing off while laptop sales grew, as laptops become more and more powerful, to the point of being as capable as a desktop for most tasks.
In recent years, that crossover point has steadily moved down, from 2012 to 2011 to 2010 and 2009. Well, it happened this year. In mid-2008, mobile computer sales surpassed desktop sales for the first time, and mobile computers are about the only bright spot for everyone involved, as desktop sales are flat.
It’s also good because laptops are higher margin products, and everyone in the supply chain desperately needs profit right now. The one potential spoiler is netbooks, which could in theory eat into the notebook market, which in turn means eating into profits.
And yet, the high end thrives. When Intel began shipping the Core i7 processor, a.k.a. Nehalem, high-end PC desktop vendor Falcon Northwest had its busiest day in ages thanks to pent up demand, and it sells PCs that start at $2,500 and peak at $8,000. So for some folks, it’s “Recession? What recession?” Lucky them.
The rise of the netbook
Plenty of folks tried to launch ultra mobile PCs, and without exception, they have been failures. The problem was always the same: the computers were crippled and fairly useless. People simply were not prepared to sacrifice a decent user experience on a crippled computer.
Thanks to the advent of Intel’s Atom processor, a low power x86 derivative, netbooks finally got a processor they needed in order to offer decent performance. Atom became so popular that Intel (NASDAQ: INTC) couldn’t make them fast enough.
The result? Netbooks is taking off like a shot. IDC had previously projected netbooks to reach nine million units by 2012. Now it’s saying we’ll hit 11 million units this year and reach 41 million by 2012. Last year, just 500,000 netbooks were sold.
While this is great news for the vendors selling them – Asus in particular, as it is finally a player mentioned in the same breath as HP (NYSE: HPQ) and Acer, thanks to its popular Eee-PC – it’s also bad news because netbooks are less profitable. A million Atom chips sold doesn’t turn as big a profit for Intel as a million Centrino chips. The constant fear is that they will erode both desktop and notebook sales.
Given how 2009 is shaping up, most of the vendors involved will be happy to sell anything.
It’s easy being green
Green tech is everywhere, from the major hardware suppliers down to individual components. To some degree, it’s driving by Silicon Valley values, where you see more Priuses on the road than SUVs around the valley these days. But, whereas many people pick the Prius because of what it says about them, there’s legitimate reasons for the greening efforts of computers.
Datacenters nationwide can’t get any more power to run their systems. Computers are filling landfills and were made with a number of carcinogens like Arsenic and pollutants like lead and PVC. Power supplies were not terribly concerned with power efficiency. CPUs, hard drives and memory were more concerned with speed than running cool or low power.
The result isn’t just funny commercials, although that is a nice benefit. From components to blade servers, vendors are working to eliminate harmful chemicals, make their old gear easy to recycle, and reduce the power draw of everything from a CPU to the power supply. These changes are often miniscule, but as Dell (NASDAQ:DELL) found out, with scale, tiny changes add up to big savings.
Next page: Rounding it up on Intel, AMD, Dell and Apple
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Intel leads as AMD bleeds
Last year’s gap widened as AMD (NYSE: AMD) continued to thrash in the water like a wounded whale. Just as it was ready to ship the Barcelona processor, AMD had to pull the plug when a very rare, obscure bug surfaced that could show up in a virtualized setting.
Most of the year was spent falling further behind Intel in performance and market share, but vendors weren’t ready to completely abandon AMD. No one wants a single provider for any part, least of all the CPU. It was in everyone’s best interest to see a viable AMD.
After losing money all year, CEO Hector Ruiz was out and COO Dirk Meyer took over. Suddenly, the number two guy was large and in charge, acting like he was an outsider brought in to right the ship. He’s certainly been a lot feistier than the soft-spoken Ruiz ever was.
And he delivered. His first quarter at the helm was almost profitable. AMD shipped Shanghai, the successor to Barcelona, three months early and faster than expected. Next month will see a slew of new desktop products. AMD is also preparing to dump its fabrication plants as independent chip manufacturing companies, which should take a huge financial strain off the company.
The bright spots for AMD this year were its ATI graphics division, which soared past nVidia (NASDAQ: NVDA) for the first time in ages, and the launch of the Puma laptop platform, which will compete with Intel’s Centrino.
For its part, Intel continued to execute without a misstep, launching a fifth generation Centrino, a new six-core Xeon, and it shipped Core i7, a.k.a. Nehalem on time. Nehalem is an ambitious new design that radically changes the structure of Intel-based systems. There was a lot of room for error, but Intel got it out on time and testers are reporting tremendous performance gains.
Now if only people had the money to buy one.
Dude, you’re getting a second wind
Sometimes, letting the founder return to head the company he started is a recipe for failure.
And then there’s Michael Dell. When he stepped out of the CEO’s office, Dell was a $3 billion company. When he returned, it was a $60 billion company. It was also in serious trouble, having lost its way, failing to grab significant share outside the U.S., missing out on the retail channel and lacking a corporate reseller channel.
After bouncing Kevin Rollins as CEO, Michael turned the ship around, remarkably so. Dell has gone on an acquisitions streak, something it wasn’t known for doing. It went into retail, adopted a formal channel strategy that HP and IBM have had for years, and worked on international expansion.
Dell is now profitable and showing the best growth rate of the top tier hardware vendors. The company is making headway in its bread and butter, datacenters. It has a new storage business, and is even getting into supercomputing. In the end, his second term as CEO may prove more notable than his first.
Building an Apple future
Apple has always been strong in education. This infamous picture, taken in a class at the Missouri School of Journalism, speaks for itself. Apple is gaining with younger people at an incredible rate on campuses, thanks to Apple’s (NASDAQ: AAPL) vibe as a trendy, hip vendor. Go to any gym and you’ll see the distinctive white wires of an iPod sticking out of everyone’s ears.
Every quarter, Apple discusses the enormous success of its chain of stores (over 247 worldwide now), and one of the stats that CFO Peter Oppenheimer cites is that half of all Macs sold at the store is to new computer owners. That is, people who have never had a computer before.
The most recent report by network traffic analyzer Net Applications found that Windows stayed static in 2008, but Mac OS grew. From January to November 2008, Windows XP/Vista held a combined 86 percent of users tracked by Net Applications, but Mac OS X grew from 7.57 percent to 8.87 percent. In January 2007, it was 6.40.
What this seems to say is Microsoft isn’t growing the market, Apple is. Apple is causing the population of computer owners to expand, which is rather remarkable as Apple computers are not cheap. They are notoriously expensive, and this was reflected in traffic by nation.
While the overall Mac figures were 8.87 percent worldwide, 10.67 of U.S. traffic was Mac, 10.65 percent was from Japan, 16.56 percent came from Switzerland is, 18 percent from Iceland Monaco, playground of the rich, was 20 percent Macintosh. With the economy in freefall, it remains to be seen if Apple can sustain those numbers.
Somehow, though, we’re reluctant to underestimate Steve Jobs.