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Who is to blame for the PC sales debacle?

The results are in, and for PC sales they are neither good, nor bad – but ugly! The pundits are out to find a scapegoat – and the most convenient scapegoat at the moment is Microsoft. For example see this report in today’s Wall Street Journal which hails Microsoft’s mea culpa.

There is no doubt Microsoft is partly to blame for the debacle. I am no fan of Microsoft’s ketchup strategy (constantly throwing money to catch-up with the successful rivals). On top of it the company itself admits that “The world is changing and changing fast, and frankly we also didn’t get everything we dreamed of done in the first release,” of Windows 8. The report quoted above goes on to say:

Windows 8, the operating software launched in October, was intended to catapult Microsoft and its allies into the market for new kinds of computing devices—including tablets—and help generally get consumers more interested in buying new personal computers. Six months after the operating software’s debut, it isn’t yet a hit by the accounts of some PC executives and research firms.

One market-research firm, IDC, went so far as to say that Windows 8 did more than fail to revive the PC market—it actually turned off users with changes to basic elements of the widely used operating system.

Ms. Reller disputed IDC’s contention, and said the company is seeing steady if not steep sales progress. She said Microsoft has sold 100 million copies of Windows 8 since October, up from 60 million in January.

However, let’s pause to think about it for one moment. What about the roles of hardware vendors – HP, Dell, Lenovo, Asus, Acer and others. What have they done to create products that consumers would like. Where is the innovation in the hardware arena that would appeal to the customers?

As I said in the comments to the above article:

I think it is wrong to blame just Microsoft or Windows 8 for this debacle in PC sales. As I discuss in my recent book The 5-STAR Business Network (http://www.amazon.com/The-5-STAR-Business-Network-Corporations/dp/061579419X/ref=sr_1_2?ie=UTF8&qid=1367705465&sr=8-2&keywords=vivek+sood) it is always the business eco-system that is responsible for the success or failure of a concept. The entire Wintel business network has failed to innovate to improve the customer experience much beyond windows XP. I am still using the same laptops with same programs with marginal improvement in speed. Apple, on the other hand, and Google/Samsung in its footsteps has created entirely new categories of products, as well as, improved the customers’ usage experience much better. If you want to look at the success of a product or concept, look at the Business Network that works behind the scene to create the user experience – not at an individual company.

In a previous blog post I spoke about Intel’s role in this picture. Here is what I wrote at that time:

No doubt, the continued softening of the PC market is not only hurting HP and Dell, but also partly responsible for what is happening at Intel. The key question is that while Intel is extremely good at Advanced Product Phasing (APP), is it capable of proving itself adept at Fire-Aim-Ready (FAR) Innovation? Without innovation, and creation of new product for where the market is moving too – cloud based mobile gadgets, Intel is likely to continue to lose ground.

Troubles at HP continue to make headline news with regular periodicity. Dell is not immune to such news either. Lenovo is now thinking about selling its low end server business. The fact remain that the business model is changing again. Cloud is doing to Wintel, what Wintel did to AS400’s. The entire Business Network must move in line with this changing business model. Those companies who can configure a new 5-STAR Business Network that fits in with this new business model will prosper. The rest will continue to look for scapegoats.

Apple’s Business Network Conundrum: To Dump Samsung or not

Has Apple learnt the lesson that Dell never learnt?

Apple has grappled with this conundrum for a while now – when, if at all, to dump Samsung? There comes a point in every business network when the erstwhile suppliers become more powerful than the ‘customer’. Dell continued to rely on its suppliers in far east while they were eating his lunch. Look where it landed Dell?

Dell’s supply chain conundrum is not well explained by the market analysts – many of its suppliers are also some of  its biggest competitors. Ten years ago, when Dell was a far bigger company that its much smaller suppliers it Asia, this did not matter much. But they have now copied Dell’s business model to perfection – making its business model redundant. They won market share by under-cuting Dell in the market place, while Dell could not invent a newer business model. No wonder Dell lost the competitve advantage it had created so assidously in the 90s by shrinking the cash-to-cash cycle and building volume.

Apple is concerned that Samsung is doing exactly the same thing to it in the mobile devices market. While it continues to persist with its lawsuit against Samsung, it does not yet desist from continuing to buy critical components from Samsung.

At the same time it also continues to expand its business network – e.g. see its attempt to enrol Intel into its fold.  The news report from BGR explains:

The move could improve the quality of Apple’s mobile chips thanks to Intel’s leading process technology, and an added benefit for Apple would be to finally sever all ties with rivalSamsung (005930), which continues to supply components for various Apple devices.

However, this move may not be an easy one.  Intel itself is re-inventing its own business business model in the post-pc world.  With the shrinking margins in the PC market, and the growing volumes in the mobile world, Intel needs to get into the mobile chip market in a much bigger way than it currently plays in that game. Yet, ‘Intel Inside’ branding strategy may not be popular at Apple. Afterall Apple knows where that left the PC makers in their business networks.

This newsreport from Reuters explains the situation better:

After Intel upped its capital spending budget by $2 billion to $13 billion this year, speculation grew that Apple could ink a deal to use Intel’s leading process technology to make better chips for its iPad and iPhone. Doing so could help Apple end its foundry relationship with Samsung, which has become a fierce competitor with its own smartphones and tablets.

Sunit Rikhi, vice president and general manager of Intel custom foundry, told Reuters last week his group is ready to take on a potential large, unidentified mobile customer, although he declined to discuss Apple specifically.

Intel spokesman Chuck Mulloy said the chipmaker is in constant discussions with Apple, which buys its PC chips, but he would not comment on negotiations about a potential foundry relationship. An Apple spokesman declined to comment.

That is the conundrum then, On one hand is Samsung, a known follower who keeps becoming into a bigger rival. On the other hand is Intel, a hard negotiator where only the paranoid survive.

I talk a lot more about Apple’s business network efficacy in my book 5-STAR BUSINESS NETWORKS – it appears that unless Apple continues to come out with some more designs and gadgets, it will have to now play this game on both fronts.

 

Intel gearing up to face the mobile assault: It may even beat them at their game

News Release
Contact: Angela Crown, Angela.Crown@globalscgroup.com
Due: November 26, 2013
Forwarding: Permitted

The world’s biggest semiconductor manufacturer has announced plans to expand the use of its state-of-the-art factories for other chipmakers. As competition escalates, Intel hopes the move will push its revenue by taking advantage of its multi-billion dollars’ worth of supply chain investment.

Specifically, Intel plans to manufacture chips to order for other companies instead of solely making its own as per tradition. By extending its foundry service, Intel could soon be making components for rivals such as Samsung, Nvidia and Qualcomm.
This is seen by many experts as a bold departure for Intel, a decision that the current CEO is more willing to make than his predecessor Paul Otellini.

Given that Intel’s sales forecast for next year does not include any drastic change, and so does the capital spending on equipment and facilities of around $US11 billion, the company needs to adapt its supply chain strategy to stay competitive.
Another measure for Intel to tackle the below-analyst-expectation revenue in 2014 is focusing more on providing what consumers want rather than trying to push its own designs, said Brian Krzanich – the sixth Intel’s CEO.

“One of Intel’s competitive advantage is its aggressive investment in manufacturing technology, which is fed by its sale volume. To ensure the cycle goes on smoothly, the company is refining its market understanding as it should be.” – said Vivek Sood, CEO of Global Supply Chain Group.

Famous for its effective product development cycle encapsulated in the “tick-tock strategy” since 2007, Intel is doing what they can to avoid becoming insular. The PC market is predicted to be down in the “low single-digit” percent, albeit the decline rate may be slow due to improved demand from enterprises and some developed markets. “Our view is that it’s declining but it’s beginning to show signs of stabilization”, said Krazanich.
Meanwhile, the mobile market is expanding rapidly, prompting Intel to start manufacturing chips for companies that are beating it in mobile phones, Krazanich confirmed.

Moreover, Intel will also focus on developing parts for a smaller number of phone makers with large sales volumes. Intel’s newly appointed President Renée James said: “In addition to Intel’s traditional areas of strength, increased integration will be Intel’s future and we plan to leave no computing opportunity unserved”.

Intel’s CEO said the company needs to catch up with the ultra-fast pace of mobile growth by delivering new products. The company also plans to have chips in sub-$100 devices and ship more than 40 million tablet chips in 2014.
Given the fact that the mobile chip market is dom

inated by ARM, Intel plans to be serious contender with next year’s release of Atom chips for smartphones and tablets. A line-up of new products is already announced as Intel pursues its goal of boosting mobile chip graphics performance by 15 times by 2016.

“Intel is not giving up on mobile. It is trying to bring its advanced product phasing to the new competitive landscape, which has earned it the top position in the PC component industry.” – said Sood, author of Move Beyond the Traditional Supply Chains: The 5-STAR Business Network.

Has Intel missed the mobile boat?

Intel has long been the model of Innovation. In particular, its famous tick-tock product development strategy has been hailed as a case study for learning how to balance the current product profitability with the pipeline of future products. For example, when I was researching an appropriate public domain case study for my book The 5-STAR Business Network I could not find a better example of Advanaced Product Phasing (APP) than Intel. At that time I wrote in the book:

Gordon Moore, Intel’s founder, predicted that the number of transistors on a chip would double every two years. Moore’s law was put in practice for many years and it ultimately led to Intel’s tick tock strategy. Intel’s ‘Tick Tock’ strategy was developed in 2007 and refers to the change in their processor technology. Each year, the ticks and tocks alternate, ticks refer to downsizing of the previous microarchitecture and tocks refers to new microarchitecture. During a tick cycle, new process technology is developed, which enhances the performance of previously produced microprocessors. A tock cycle consists of an entirely new processor or product. Many say that this rhythm of development sets Intel apart from other companies, as having a fixed timeline allows the business to produce products at pre determined intervals, and yet manage the product profitability carefully. ‘Intel has successfully alternated and delivered the next generation of silicon technology as well as new processor microarchitecture year after year’ (podtech.net). —

— Overall, Intel appears to be doing the impossible: investing in new technology while simultaneously maintaining and investing in their existing product line-up developments. This system creates a pipeline of continuously flowing products, which are both innovative and sold in large volume, making Intel one of the most successful Fortune 500 companies while producing the largest amount of microprocessors in the world.

Intel managed its transition from a manufacturer of memory to micro-processors admirably. During the transition from memory to microprocessors, Intel’s number one concern was becoming the best microprocessor company. Former CEO Andy Grove created a system called Strategic Long Range Planning. Essentially, this strategic framework allowed Grove to do things his way. ‘I became very distinctive in prescribing the strategic direction from the top down. This defined the strategy for all of the groups, and it provided a strategic framework for different groups at different levels of management.’ (Grove as quoted on aomonline.org)

However, the next transition – to mobile processors is proving to be far more challenging. To start with, Apple is not as easy a customer as IBM was for PCs. Samsung produces its own processors. Other players in smartphone market are too small to give any economies of scale in large scale manufacturing.

While quaterly profits do not tell a full story, Intel has just annouced the second quarter in a row where its profit fell more than 25% – this report in Wall Street Journal carries the full story. In its press release Intel said:

“Amidst market softness, Intel performed well in the first quarter and I’m excited about what lies ahead for the company,” said Paul Otellini, Intel president and CEO. “We shipped our next generation PC microprocessors, introduced a new family of products for micro-servers and will ship our new tablet and smartphone microprocessors this quarter. We are working with our customers to introduce innovative new products across multiple operating systems. The transition to 14nm technology this year will significantly increase the value provided by Intel architecture and process technology for our customers and in the marketplace.”

No doubt, the continued softening of the PC market is not only hurting HP and Dell, but also partly responsible for what is happening at Intel. The key question is that while Intel is extremely good at Advanced Product Phasing (APP), is it capable of proving itself adept at Fire-Aim-Ready (FAR) Innovation? Without innovation, and creation of new product for where the market is moving too – cloud based mobile gadgets, Intel is likely to continue to lose ground.

What should Intel do in this scenario? Make a deal with Apple at any cost? Invent its own mobile gadgets? Help create an equivalent of Dell for the mobile market? What else? You comments are welcome below:

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