Analyst Opinion - As we watch the U.S. Auto industry struggle with the very real likelihood that it won’t exist by the end of next year, because those did not build the cars people wanted to buy, it is only conclusive to ask whether the U.S. technology is going down a similar path. The U.S. Auto industry was blindsided as they ignored the trend towards more efficient cars, bled share to companies such as Toyota and was virtually killed when the economy collapsed. So, how is the situation with tech?
Right now, the PC market wants a MacBook Air-like product in the sub-$800 price range. TG daily just ran a piece on such a product and its opportunity. But, by all measures, the PC vendor that could provide such a product would likely be unable to keep up with demand. Yet, even though it is possible to build such a product, there isn’t a single one in the market. Why?
Intel and Microsoft won’t let them build one. Let’s look at this a bit closer.
Intel’s 10” rule
Currently, the best processor for an ultra-thin low-cost product is Intel’s Atom dual-core processor (Diamondville core). However, Intel doesn’t want to cannibalize its higher-end low power processors: There are significant financial disincentives in place to prevent any OEM from putting an Atom chip in anything that has a screen larger than 10”. Several vendors have used the lower cost, lower performance, Atom processor in 12” products, because that part was designed for PDAs and doesn’t have the disincentive, but the result is lower performance than otherwise would be the case. In effect, these vendors gamed Intel’s system, but the result was a class of product that may not meet performance minimums for some markets.
Evidently, this has put new life into Via and it is driving AMD into this segment, because neither of them have this rule and are more than happy to position their existing or, in the case of AMD, upcoming parts for this opportunity. But neither firm is well positioned to take advantage of this opportunity just yet.
The OEMs realize they are losing substantial potential sales, because they don’t have the right products at the right price in the market and are aggressively trying to find ways around this problem. There is some speculation that Apple may actually figure out a way around this Intel barricade. But, at least until today, this has been the primary reason why we haven’t seen a sub-$800 MacBook Air like product yet.
Microsoft 12” rule
For Microsoft, the problem was not one of canalization but one of extending the life of Windows XP against the excessive use of Windows Vista Basic. Windows Vista cost too much to hit the price point and required too much performance to keep the hardware cost within the target cost envelope. There is no restriction for using Windows Vista Basic, but the product has a negative connotation and Microsoft has already formally started the process to discontinue Windows XP and didn’t want to further extend its life. As a result, the company initially set a 10” screen size limit on Windows XP loads for Notebook/Netbook computers and recently moved the bar up to 12”, which is why Microsoft isn’t considered to be the major problem at this time.
This potentially gets resolved next year when Windows 7 ships, which is promised (yes I know about Microsoft promises a lot, but bear with me) to run on the lower performance, but more efficient hardware. So this might be a self-correcting problem but, right now, there is another restriction preventing the perfect notebook at the ideal price.
Could Apple fix this?
Apple clearly won’t shoot for a sub $800 price point, because they need to maintain higher margins. But Apple could create a sub-$1000 product and it is actually expected to bring one out. Apple has no Microsoft dependency and thus don’t have that restriction. Since their deal with Intel does not include co-marketing dollars, which is where the penalty is currently applied, indicating they may be able to get a more favorable price than any of the traditional Windows OEMs.
The likely fear is that such a device would cannibalize MacBook Air sales and that may prevent Apple from bringing out a sub-13.3” product and, if true, they are stuck in the same place for similar reasons. The only difference is they did this to themselves.
The tech market hybrid problem
In effect, this isn’t very different from the hybrid/price/efficiency decisions that screwed the auto industry. It isn’t as if folks didn’t know what they should be building. They just had a lot of reasons not to build them that, now, in hind sight, was pretty stupid. One thing you learn about large companies, all large companies, is that a bunch of smart people can get into a room and rationalize company killing decisions.
Right now, the market wants to buy great products in the sub-$800 range. The companies that have more of these devices - and several have strong sub-$800 lines - will do better than those that don’t. The challenge is getting Intel and Microsoft out of the way, so the industry can build whatever the market wants to buy. I can imagine a bunch of folks at GM, Ford, and Chrysler wishing they could have gotten some folks out of the way so they could have built the cars they believed, the company should have been building.
It is this kind of restrictive thinking that creates opportunities for others. Based on what I’m hearing from the OEMs, VIA and AMD are the most likely beneficiaries.
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.
The opinions expressed in this commentary are solely those of the writer.