Intel, Microsoft, and the curious case of the iPad
10/18/2010 12:44:00 AM
kenmouse
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"That tablet thing? Yeah, we'll get back to you on that." That's a crude but fairly accurate encapsulation of the attitude Microsoft, Intel, and Advanced Micro Devices have toward the iPad and the tablet market in general.Why the cavalier attitude? Before I defer to the opinion of an IDC analyst I interviewed (below), here's one pretty obvious reason I'll put forward. All three companies look at their revenue streams--traditional PC hardware and software on laptops, desktops, and servers--and come to the conclusion that the tablet is a marginal market. A deceptively accurate conclusion, because at this point in time--and even 12 months out--the tablet is marginal compared with the gargantuan laptop, desktop, and server markets.
And listening to both Intel's and AMD's earnings conference calls this week, it's clear that relative nonchalance is the prevailing attitude. While Intel's CEO did address the iPad directly, he later opined that the tablet "numbers...are relatively small in the grand scheme of the ship rate of the PC, notebook, and Netbook businesses." A variation on a theme he's stated during past conference calls. And AMD's CEO went so far to say that the tablet doesn't even warrant R&D spending yet.
At the other extreme is Apple's earnings statement (which, I submit, is as good a crystal ball as you'll get for future market trends), showing a brave new world that is moving to tablets in a significant way. According to figures cited by Apple in its third-quarter earnings, 3.27 million iPads were sold versus 3.47 million Macs. And that happened, mind you, in a matter of months. And iPad revenue? From zero in the first quarter to $2.17 billion by the third quarter.
So, am I being too harsh--or too simplistic--in judging Microsoft, Intel, and AMD by saying, it's the tablet, stupid? On Friday, I asked Bob O'Donnell, a program vice president and analyst at IDC, about the seeming failure of the PC camp to fully grasp the significance of the tablet. His response, more than anything, tries to put the Microsoft-and-Intel-just-don't-get-it argument in perspective.
First some raw numbers. IDC expects Apple to sell about 15 million iPads this year. All media tablets (including other brands) will be about one-tenth of projected notebook shipments, which are forecast at 200 million, O'Donnell said in a phone interview. "That's an amazing accomplishment for one year," he said, referring to the rise of Apple's iPad.
And what does the total tablet market look like in 2011? "Next year, we think it could be in the range of 50 million. Our current published number is 30 [million] but we think we're too low," he said. The numbers include the BlackBerry PlayBook; an HP WebOS-based tablet; and tablets from Motorola, Samsung, and Nokia, among others, according to O'Donnell. Notebook shipments, on the other hand, are expected to be about 250 million in 2011, he said.
Though O'Donnell offers some arguments below explaining--if not defending--the Windows-Intel camp's apparent lackadaisical attitude, he also has some harsh words. "The problem that both Intel and AMD have is that Microsoft doesn't have an answer. There have been Windows tablets since 2002. This year Windows tablets will be about 1.5 million, about one tenth of tablet market this year. That's because Windows is not designed for these environments," he said. "Microsoft really needs to get its act together."
And where does a discussion like this inevitably go? Cannibalization, of course. Which is often cited because it crystallizes the threat that the tablet poses.
"Everyone talks about cannibalization. That's the hot word. There are three ways to think about this," O'Donnell said. "The one critical thing to remember is that it's not an either-or equation. One does not preclude the other," he said, referring to tablets and laptops.
Cannibalization scenario 1: "Short-term purchase cannibalization. That is, I walk into Best Buy with $500, and what do I walk out with? I walk out with an iPad instead of a notebook. That is happening to some degree. The [CEO] from Best Buy said so. Our own research suggests the same."
Cannibalization scenario 2: "Long-term purchase cannibalization. Two years ago, Netbooks were going to kill the notebook market. Now, a few years later, we can look back and say 'no, not really.' There was a period that people bought a lot of Netbooks. And it delayed the purchase of notebooks. But at the end of the day, when people wanted to update their notebook, they went out and bought a new notebook. A similar phenomenon happens with tablets. People may short-term delay the purchase, but when they need to get a new notebook, they're still going to get a notebook. In other words, they're going to use both of these things simultaneously."
Cannibalization scenario 3: "Usage cannibalization. I buy one device and I don't use the other device." But O'Donnell believes that argument is problematic. "So, you play with your new toy for a week. But at a certain point you realize you're going to use both of them."
So, are Microsoft, Intel, and AMD not that obtuse after all? Can they afford to take their time? Well, let's see if Microsoft and Intel and the PC camp gets it act together by early spring of next year. If they're still jawboning about the tablet being marginal, then maybe they're fine with ceding the lion's share of the market to Apple, Android, and other platforms, like WebOS and the BlackBerry. And ultimately losing a lot of PC mindshare in the process.
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