Intel and PCs – Soggy in the middle

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A new PC cycle depends on marketing.

• Intel warned on Q1 revenues as the corporate refresh cycle has come to a more abrupt end than expected.
• This combined with a poor macro outlook for Europe caused Intel to warn that revenues would be about $900m lower than expected.
• Q1 15E revenues will now be $12.5bn-$13.1bn ($12.8bn) compared to previous guidance of $13.2bn-$14.2 ($13.7bn) which represents a miss of 6.5%.
• 2014A PC shipments stabilised as the end of Windows XP support by Microsoft forced many corporations to upgrade their PCs.
• This offset the ongoing weakness in the consumer PC market.
• This was expected to filter down into small and mid-size corporations but this has not happened.
• Adding in the extra weakness triggered by instability in the Eurozone caused a meaningfully weaker revenue picture to emerge.
• The server business continued to be strong but with corporates falling off, it was unable offset the long-term trend of consumers moving to smartphones and tablets.
• It is clear that users who only use a PC for content consumption are better served by using a smartphone or a tablet.
• RFM research indicates that a large proportion of content consumers have already deserted the PC but there are still enough of them still leaving the platform to keep PC numbers heading slightly south.
• Many commentators will see this news as another nail in the coffin of the PC but I don’t believe that this is the case.
• Content consumers no longer have a reason to own a PC but content creators and companies need the extra power and input systems that the platform offers and I don’t see this going away.
• Furthermore, RFM estimates that content creators and corporations make up more than 75% of all PC users.
• Consequently, once the content consumers have all left the platform, the market should grow slowly, albeit from a lower level.
• Finally, I think that when Intel, Microsoft and the PC makers finally realise that the laptop is an obsolete form factor and start properly pushing the tablet PC as a laptop replacement, then a product cycle will kick in.
• The tablet form factor offers far better flexibility, functionality and ergonomics to the user than the laptop and with the specification of the Surface Pro 3, it can be a true portable desktop (see here).
• If these companies get behind a marketing message that educates the users with regard to what is really on offer, then I can see laptop form factor being replaced with the tablet.
• This would be enough to drive the PC market back to growth and underpin a big rally in all the PC names including Intel and Microsoft.
• However, this requires dusty old marketing departments to ditch the sales tactics they have been using for 30 years and embrace a new paradigm.
• Of this there is no sign and until there is, profit warnings and slip ups of this nature are likely to re-occur.
• Weakness in Microsoft represents an opportunity to pick-up exposure to the larger ecosystem theme.