Tag: Dell
Why ICAHN is a Bad Fit for Dell
I have had the privilege of following Dell from its inception. I became a PC industry analyst in 1981 and have tracked the PC industry from its beginning. In the process I have had the privilege of interacting with every one of the PC and CE companies at the highest levels for 32 years. Those who have followed my current writings in TIME’s online Tech section, PC Magazine and our own publication called here as well as my commentary on all of the major TV and radio networks and business publications know that I have been chronicling the tech market for decades.
I have watched PC companies come and go and understand well how the industry developed and what it will take to compete in the future. I have seen the market for PCs grow exponentially and become the heart of Information Age. Although the role of PCs has changed over these decades, it is still a key component of any business and consumer’s life, even if some of those computers are now called tablets and smartphones.
I have been watching closely the competing bids to take Dell private and am quite concerned about any outside plan that would not guarantee that Dell remain whole and execute as a single company with all divisions contributing to its success. While I have respect for Mr. Icahn, I am not convinced he really understands the dynamics of the tech market and what it takes to compete in this fast changing marketplace. The tech industry is not like the oil and gas industry where things change slowly. I believe that for Dell to compete and grow it must be run as a single unified company where all divisions work together to achieve their vision and goals. But if history is our guide, keeping Dell intact is probably not in the plans of Mr. Icahn and his team.
One Company, One Vision
A few months back, Dell held its annual industry analyst days in Austin. Like all of my colleagues at the event, we went to the conference to see first hand how Dell saw the market, what role it would continue to play in a technology world that is rapidly changing and how they planned to grow as a company in light of the increased competition and shifting demands from business users and consumers alike.
I sat through two days of speeches and dedicated divisional information sessions and in the end, came away with a picture of a company that was much more in control of its future than I had suspected. I found that they had diligently laid out the necessary building blocks that, when tied together, could give them the ability to weather the changing dynamics of the tech market today and had a solid vision that can drive it forward in the future. One that includes being a hardware, software, and services company offering the whole package for many key growth segments.
One very important thing that I came to understand from these meetings is that in order for Dell to navigate these choppy industry waters, it needs to be able to execute this vision in a measured and strategic way, which will take time. It is clear to me now that this is the main reason Michael Dell wants to take the company private. Trying to rush these things would be difficult given the need to make these changes to Dell’s future business models so that it can be done properly and executed without the pressure of always having to keep the investor community happy each quarter.
The building blocks of powerful server hardware, software and services, world class security, expanded IT services and even their PC business that, as we were told, drove 50% of all of their enterprise sales, are key components that when woven together as a single unit gives Dell the opportunity to remain a major player in the world of technology. We were also told about new tablets and other mobile products in the works that, when they come to market later this year, will make Dell very competitive with Lenovo and HP as well as other PC and CE vendors that are all targeting the same business and consumer customers.
I have one key observation that is quite important to this discussion. When I look at Dell, its building blocks and its competitive challenge ahead, I am convinced that they can only remain a powerful player in the tech market if the company competes as a whole, with all of these building blocks they have put into place working in harmony. Every one of their divisions needs to be connected and walking in lock step if Dell is going to succeed.
Servers, PCs and mobile devices need security. IT needs servers, software and mobile device management tools all working together to meet the needs of their mobile users. The future of software distribution is in the cloud and all of Dell’s divisions deliver key parts of a cloud solution that can work together seamlessly if executed properly. Consumers want a company that delivers solid products that they stand by and look to as PCs, tablets and smartphones become more engrained into their digital lifestyles. From what I saw while at the analysts meeting, Dell finally has all of the pieces in place that, when working together, will sustain the company and help it grow if executed well in the face of a tech marketplace that is constantly changing.
I cannot stress how important I feel that Dell operate as a unified entity in order to compete and grow. I have spent many years understanding the machinations of a successful tech company and monitored the shifting winds of business and consumers whose needs and wants constantly change. I can tell you without a doubt that for a company like Dell, HP and Lenovo, all of their divisions and executives have to be on the same page, working and collaborating closely together to provide all of the key components of hardware, software and services if they are to succeed given the current and future market conditions I see ahead.
For the record, I don’t own any Dell stock. I am an independent market researcher with 32 years of experience examining the tech market and this perspective comes from decades of studying how this industry works. In my opinion, if there was ever a time when a company needs to operate as a unified force, it is now.
Providing powerful technologies across hardware, software and services that are all interrelated and interconnected is the key to success in this globalized tech market where vision, order and collaborative leadership is vital to a PC company’s ability to remain competitive and thrive. Any attempt to break up that kind of synergy will only lead to failure.
Is Apple Making A Play For the PC Market Too?
Dell’s Thinking Outside the Tablet
What is a tablet? Sorry to get philosophical but I think this is an interesting question–especially of late. I sensed from the first early glimpses I got of Windows 8 that we would see hardware that would cause us to question whether it was a tablet or a notebook. I’m still not sure the hybrid or convertible devices on the market today have yet nailed a mass market success and I remain pessimistic that they ever will. Pure slate tablets are the hot ticket and I believe will continue to be for the foreseeable future. However, there is one category of Windows 8 devices that has had my interest peaked for a while. That is portable, large screen, touch based, all-in-one PCs.
Today Dell is releasing the XPS 18. An all-in-one computer. Typically when I refer to this category, I call it an all-in-one desktop computer. However, with the XPS 18, I can not use that term because this all-in-one is not confined to a desk but is rather a highly portable 5 lb computer with a tablet twist. The XPS 18 is not positioned as a tablet nor should it be, but still, many of the key value propositions of tablets are applicable. I guess perhaps with the exception of putting it in a bag and leaving the house for work, school, or Starbucks–or are they?
I first saw these larger screen portable all-in-ones late last year. The reinvention, or I should say redefining, of the desktop category was a trend I had been tracking for a while. Larger, portable, touch computing solutions were not something readily available for the mass market until now. I first saw a touch based table top PC when Microsoft first showed me their Surface Table. That product was too pricey but I felt had a great deal of potential. In my opinion, the XPS 18 is the first to deliver on this new vision of a larger screen touch computing solution.
What makes this product interesting to me is the communal nature of the device. I have been writing for a while now about my conviction for touch based computing products and how there will be some that are personal (meaning intimately tied to a single person) and there will be ones that are communal (meaning freely shared within a community). The communal nature of a computer has always been the case of a desktop PC. These devices, as they matured, were largely used in consumers homes as a shared device. That is what makes this new class of touch based portable all-in-ones so interesting to me.
Dell is positioning this correctly in my opinion because they are focusing it on family use cases. Families can gather around this and use the 10 pt multi-touch functions to play games, or draw together, etc. Yet on top of the many new uses cases that will emerge from this category, consumers still have the bare bones powerful PC they still need for every day computing tasks. But its large screen portability is what I think is interesting. By having an 18-inch portable display that is connected to the web, and runs Windows applications, it opens up some new possibilities. Using it as a portable TV or media hub for example. Or in the kitchen for recipes, or out in the garage for how-to videos and instructions, or even for backseat passengers in the car since it gets 5 hour battery life.
I know several of the use cases I pointed out can also be used for tablets like the iPad, however, what makes the XPS 18 interesting is that it can also be used a full desktop class PC. There is a role for both in my opinion. I firmly believe that the XPS 18 will challenge many peoples pre-conceptions of not just what an all-in-one computer is but also what a tablet is and means to them. At $899 it is actually a reasonable price for a device that may blur the lines for many use cases consumers are looking for.
My friends from Dell came to our offices last week and gave me the walkthrough of the product and let me have some time with it. They set it up with the Bluetooth Keyboard and mouse and I never touched them. I just picked it up, put it on my lap, and started playing with it. I plan on doing a full review / analysis of the XPS 18 but what I will say for now was that I was impressed and intrigued by this form factor. I applaud Dell’s thinking with this product as well as with many other nicely designed computers they have released of late.
Mostly individuals use computers, but there is a place for a family computing device. I believe companies that approach computing from a family standpoint will generate interest in the products they make even if they are simply stand alone solutions. I expect many more solutions like this to come but for now, the Dell XPS 18 may be the best family computer/(tablet?) I have seen to date.
The Mobile Train Has Left The Windows 8 Platform Behind
Yesterday, Canaccord Genuity, came out with a report on the profits taken in by the mobile phone sector and Canalys came out with a report on the market share in the tabet, notebook and desktop sectors – and all anyone could talk about was whether Apple and Samsung could take in more than 100% of a sectors’ profits or whether the tablet was truly a PC or not.
Please. These are accounting and verbal semantics that are as meaningless as asking how many angels can stand on the head of a pin. Let’s focus on the implications of these reports and ignore the bickering over irrelevant rhetorical flourishes.
Handset Profits
According to Canaccord Genuity, Apple took in 69% of the handset (all mobile phones, not just smartphones) profits in 2012. Samsung took in 34%, HTC accounted for 1%, BlackBerry and LG broke even, Motorola and Sony Ericsson both acounted for minus 1 percent and Nokia brought up the rear with a negative 2 percent of the industry profits.
No one not named Apple or Samsung is making any meaningful profits from the handset sector. Considering that both Microsoft and Google’s Android are based on a licensing model, this is more than a little shocking. Licensing is supposed to encourage variety among hardware manufacturers. Clearly, that is not happening.
Many industry observers have the handset market all wrong. They opinie that Andoid is destroying iOS. What is actually happening is:
1) With 69% of the profits, iOS is doing just fine. More than fine, actually.
2) Android destroyed every phone manufacturer not named Apple (BlackBerry, Nokia, Palm, etc.).
3) Samsung destroyed every Android phone manufacturer not named Samsung (HTC, Motorola, Sony Erricson, etc.).
Pundits like to predict the imminent demise of iOS, but those profit numbers say just the opposite. And even as Android’s market share has increased, iOS’s profit share has increased too. Market share is no guarantor of profits. This should be self-evident. But apparently, it’s not.
The big losers here are Palm, Nokia, BlackBerry and Microsoft. Palm is gone and Nokia and Blackberry’s market shares and profits have fallen off a cliff. And Microsoft? After three years of flailing, Microsoft’s Windows 7 is dead and Windows 8 phone manufacturers are all in the red.
Tablet, Notebook and Desktop Market Share
Worldwide PC shipments increased 12% year-on-year in Q4 2012 to reach 134.0 million units, with pads accounting for over a third. ~ Canalys
There are two things that we can take from this statement. First, personal computing sales are growing at a respectable rate, however all of that growth is coming from tablets, not from notebooks and desktops.
Second, tablets now make up one-third of the mix of tablets, notebooks and desktops. In fact, several groups are now predicting that tablets will outsell notebooks and desktops by the end of 2013. This is a monumental shift in form factors and not everyone is making the changes necessary to stay abreast.
Companies like HP, Lenovo and Dell missed the shift to smartphones and now they’re missing out on tablets too. But of all the companies being hurt by the rise of smartphones and tablets, I think that Microsoft has been hurt the most:
…only 3% of pads shipped in Q4 2012 used a Microsoft operating system. The software giant’s entry into the PC hardware market was something of a non-event. High pricing, poor channel strategy and a lack of clarity regarding its RT operating system led to shipments of just over 720,000 units. ‘The outlook for Windows RT appears bleak. ~ Canalys
Who Is Selling All Of The Tablets?
According to Canalys, Apple – despite being supply constrained – sold 22.9 million tablets for 49% share, Samsung shipped 7.6 million tablets, Amazon shipped 4.6 million tablets for 18% share, and Google’s Nexus 7 and 10, combined, shipped 2.6 million tablets.
Again, companies like HP, Lenovo and Dell are almost non-existant in the 10 inch tablet space and Windows 8 tablets aren’t even competing in the rapidly growing 7 inch tablet space.
As an aside, Canalys seemed impressed with the Google Nexus numbers but I’m not. If you’re selling your hardware at cost and making it up in content and advertising sales, then your sales numbers should be much, much higher. And it has to be an embarrassment to Google that the Amazon tablets – which have the same business model as Google – are far outselling Google’s tablets.
Who Will Be Selling The Tablets Of Tomorrow?
‘Those who control ecosystems, such as Amazon and Google, can obtain revenue from content sales, but pure hardware OEMs must accept decreasing margins or exit.’
Samsung made impressive growth in tablets this year, but their tablet future seems uncertain. With Amazon, Google and Apple all able to supplement their tablet incomes with App and content sales, Samsung is left out in the cold.
It’s still early days for Windows 8 tablets, but it’s not looking good. I expected there to be an explosion of Windows 8 tablet sales last quarter due to pent up demand and holiday buying. The question in my mind was whether Microsoft would be able to sustain its large initial sales momentum.
That initial sales explosion didn’t happen. Windows 8 tablet sales were more than disappointing. An ill omen if ever there was one. And as I’ve stated before, regardless of how well the Surface Pro sells, it is a notebook, not a tablet, competitor. In a world where tablets are clearly the next big thing, Microsoft is still insisting that what people really want are hybrids, not pure tablets.
Conclusion
Smartphones and tablets are growing and notebooks and desktops are stagnant or declining. Only Samsung and Apple are competing in phones. Only Amazon, Google, Samsung and Apple are effectively competing in tablets. The mobile “train” has left the station and companies like HP, Lenovo, Dell and Microsoft are standing on the Windows 8 platform, watching it pull away.
Where Have All The Profits Gone? Gone to Apple, Every One
A few years ago, folks in tech used to worry that all the profits in the PC industry were being scarfed up by Microsoft and Intel and that the crumbs left to PC makers would be insufficient to fund any innovation. For companies not named Apple, those were the good old days.
Apple’s blowout December quarter was stunning enough viewed in isolation. But it is even more striking in comparison to the rest of the industry. Apple’s revenues of $46.2 billion blew past Hewlett-Packard’s $32.3 billion to make it the industry leader by sales. But the real story is profits. Apple’s net of $13.1 billion was just a hair less than the earnings of Microsoft, Intel, HP, and Dell combined.
For a little historical perspective, in 2006, Apple earned just under $2 billion on sales of $19 billion for the entire year. Microsoft and Intel combines for sales of $80 billion and profits of $18 billion. (M.G. Siegler at TechCrunch has a host of other Apple-industry comparisons.)
Apple’s growth and stunning profitability is obviously wonderful news for the company and its shareholders. And there are no signs that its remarkable run is over. The growth rate of the December quarter is unsustainable, but that is a reflection of the strength of one three-month period, not an indication of any weakness.
But the concentration of the tech industry’s profitability in one company is a potential problem for the industry as a whole. Apple is a wonderfully innovative company that has, year after year, come out with the most interesting products in tech. And the iPhone and iPad have spawned a whole ecosystem of successful third-party products.
Innovation, especially in hardware, requires talent, imagination–and money. Apple’s cash hoard–by now over $100 billion–allows it to do things that competitors cannot even think about.
It’s not a healthy situation to have all the innovation coming from one company, no matter how brilliant. But the razor-thin margins of Apple’s competitors make risk taking difficult. Consider the sad case of HP and the TouchPad. Executives of HP’s Personal Systems Group saw webOS and the TouchPad as a way to both challenge Apple and to free the company from the domination of Microsoft. PSG chief Todd Bradley saw this as a fight of “years, not months.” But looking at startup costs in the billions and a lack of instant success, HP’s top management got cold feet and killed the project before it had a chance. A lot of this had to do with HP’s tumultuous internal politics, but the fact that the company earns eight cents on every dollar of revenue while Apple nets 29 cents has to have been an important factor in its skittishness. The problem is the vicious cycle, in which a financial squeeze cripples innovation which damages the prospects for growth.
It’s hard to see how this situation changes anytime soon. Perhaps Google, which has margins even better than Apple’s though it is a much smaller company, can use some of its profits to turn stodgy Motorola Mobility into an innovation engine, assuming that it completes its planned purchase. Maybe the partnership of Nokia and Microsoft will produce something wonderful. But for the foreseeable future, expect Apple to expand its dominance.
The Dell XPS 13: An Ultrabook that Could Steal Customers From Apple
If you are in the high-tech industry and haven’t heard of the term “Ultrabook”, you’ve probably been on sabbatical or have been living
under a rock. Intel introduced an industry-wide initiative to re-think the Windows notebook PC, which they have dubbed and trademarked the “Ultrabook”. Launched at Computex 2011, Ultrabooks are designed to be very thin and light, have good battery life, have instant-on from sleep, be more secure and have good performance. If you want to see the details on what constitutes an Ultrabook, let me direct you to an article I wrote in Forbes yesterday. Does this sound a bit like a MacBook Air? This is what I thought about the entire category until Dell lent me their Ultrabook, the Dell XPS 13, for a few days. I have to say, I am very impressed and believe they have a winner here that could take some business from Apple. I don’t make that statement lightly as my family is the owner of three MacBooks and I do like them a lot.
Dell plays hard to get
When Ultrabooks were first introduced in July, Dell was somewhat silent on their intentions. Typically Dell is locked arm in arm with 
Intel many steps of the way. When they didn’t introduce an Ultrabook by the back to school selling season, “industry people” started to ask questions. When Dell didn’t release one by the holiday selling season, people were asking, “what’s wrong with the Ultrabook category”, or “what is Dell cooking up”?
I thought they were waiting for Intel’s Ivy Bridge solution that was scheduled for earlier in the year. Whatever Dell was waiting for doesn’t matter, because they did nothing but impress at CES. During the Intel keynote with Intel’s Paul Otellini, Dell’s vice chairman Jeff Clarke, stormed on-stage with some serious Texas swagger. The video cameras at the CES event didn’t do the Dell XPS 13 justice as it’s hard to “get” the ethos of any device on camera, but with Jeff Clarke and Paul Otellii on stage, you knew it was important to both companies. In my 20+ years as PC OEM and technology provider to OEMs, I believe the only way to really “get” a product is to live with it as your primary device for a few days. And that’s just what I did.
Industrial Design
It’s apparent to me that Dell took their combined commercial and consumer experience and put it to good use. Rather than just follow Apple, HP or Lenovo, they put together what I would call the best of both worlds. The machined aluminum frame adds the brawn and high-brow feel, while the rubberized carbon-fiber composite base serves to keep the user’s lap cool and reduce weight. The rubberized palm rest provides a slip-proof environment that adds serious precision to keystrokes and trackpad gestures. It also provides a slip-proof mechanism for carrying the unit across the house, the office, or into a coffee shop. In a nutshell, Dell solved my complaints about my MacBook Air and made it look, feel and operate premium.
Instant-On
I give Dell and Intel credit for working together to make Windows 7 PCs almost “instant on”. The XPS 13 turned on and off very quickly thanks to Intel Rapid Start and Dell’s integration. I wasn’t able to use Smart Connect, but when I can use the XPS 13 for a few weeks I want to try this out. This is essentially a feature that intermittently pulls the XPS out of sleep state and pulls in emails and calendar updates. While this is as close a PC will get to “always on, always connected”, it is a decent proxy.
Ingredient Branding and Certifications
Historically, the typical Windows-based PC with all its stickers looks like a cross between a Nascar racing car and the back of a microwave oven. That doesn’t exactly motivate anyone to shell out more than $599 for a Windows notebook. There are no visible stickers on the XPS 13 and the only external proof of Intel and Microsoft is on a laser-etched silver plate on the bottom of the unit. Underneath the plate are all the things users usually ignore like certifications.
Keyboard and Trackpad
I never quite understood how little evaluation time users spend on what ends up being one of the most important aspects of a notebook; the keyboard and trackpad. I already talked about the rubberized palm rest that gives the XPS 13 a stable palm base for the keyboard and trackpad. My palms slip all over the place with my MacBook Air. The XPS 13’s keyboard is auto backlit and the keys have good travel and a firm touch. The trackpad feels like coated glass and supports all of the Windows 7 gestures. Clicking works by either physically clicking the trackpad down or gently tapping it. It’s the user’s choice.
Display
The display is 13.3″ at a very bright 300 nits at 1,366×768 resolution. It’s an edge to edge display (or nearly), which allowed Dell to design a 13.3″ display into around a 12″ chassis. I compared it to a MacBook Air and it is in fact narrower with the same dimension display. That is very impressive. I would have preferred a higher-resolution display but I don’t know if many users will make a huge deal out of this. The display is coated with Gorilla Glass which gives some extra added comfort knowing it will be up to the task of my kids accidentally scratching it up.
Ports
Compared to some of the other Ultrabooks, I applaud Dell for removing some of the ports that I am certain primary research said were “must-haves.” Must haves like a VGA port, 5 USB ports, and an ethernet port. (yawn) Users get a Displayport, one USB-3, one powered USB-2, and a headphone jack. The only port I would have preferred was a mini or micro HDMI port. Displayport guarantees that I will need to buy a cable or an adapter I don’t have. I can live without the SD card reader but it sure would have been nice if they could have fit it inside.
Battery Life
I am still very skeptical on most battery life figures of any battery-powered product. One exception is the Apple iPhone and iPad, where Apple goes out of their way to provide as much detail as possible for different use cases. With that caveat, I do believe the Dell XPS 13 will have very respectable battery life figures versus other Ultrabooks and the Apple MacBook Air. Dell says the XPS 13 will achieve nearly 9 hours of battery life, well above Intel’s target of between 5 and 8 hours.
One of the sexier features harkens back to the days of Dell batteries, which had buttons to gauge how much was power was left. Like the Dell batteries of yesteryear, press a small button on the side (not back) of the XPS 13 and it will light up circles to show how much battery you have left. That shows a dedication to useful innovation, not penny pinching bad decisions made in dark meeting rooms. This is the kind of small thing that demonstrates attention to detail that Apple quite frankly has dominated so far.
Consumer and Commercial Applicability
Whenever I hear that one product serves two different markets I usually cringe and jump to the conclusion that it will be mediocre at both. I also take a very realistic approach on the “consumerization of IT”, in that I believe we are a long way off until 50% of the world’s enterprises give their employees money to choose their own laptop. In the case of the Dell XPS 13, I believe that it will provide a good value proposition to both target sets. Consumers are driven by style, price, aesthetics and perceived performance at an certain price point while businesses are more interested in TCO, services, security, and custom configurability. The Dell XPS 13 provides all that. They may run into challenges with IT department and sealed batteries, lack of VGA and Ethernet ports, but then again a few IT departments would require serial ports if you let them spec out the machine completely.
Pricing and Specs
The Dell XPS 13 starts at $999 and includes an Intel Core i5 processor, Intel HD 3000 graphics, 128GB SSD hard drive, 4GB memory, USB 3.0, and Windows Home Premium. For a similarly configured Apple MacBook Air, buyers would pay $1,299. With the Mac, you get OS X Lion, a bit higher resolution display, Thunderbolt I/O, and an SD card slot. And yes, for the record, I know PCs don’t primarily sell on specs but they are still a factor in the decision. If it weren’t, Apple wouldn’t provide any specs anywhere, right?
Possibly Taking Bites from the Apple
From everything I experienced with the Dell XPS 13 evaluation unit, I can safely say that they have a potential winner. Why do I say “potential”? First, I’m using an evaluation unit, not a factory unit with a factory image. As a user or sales associate, if I start Windows and I start getting warning messages for virus protection, firewall and 3rd party software, the coolness factor will be for naught. The first consumer impression will be bad. I hope this doesn’t happen with the factory software load.
Many success factors go into successfully selling a system and creating a lasting consumer bond. Great products must align with great
marketing, distribution and support. Controlling the message is key at retail. If, and I mean “if” Dell can effectively pull their messages through retail and somewhat control merchandising at retail, this will be a solid step in connecting the value prop with the consumer. This is very hard, especially in the U.S., where Best Buy rules brick and mortar. What will the Best Buy yellow shirt say when someone asks, “whats the difference between the MacBook Air and the Dell XPS?” If they say “$300” that is a fail. Retail will be important, more important than direct for Dell, because industrial design doesn’t translate well to the web. Seeing the XPS 13 image doesn’t impress as much as holding it does, so retail cannot be minimized.
I see the XPS 13 doing well in business and enterprise, again, given aligned messaging, channel, sales training and support. IT departments now have a design that is every bit as cool as the MacBook Air and arguably more productive plus the added benefits of TPM and Dell’s customization and support.
Net-net I see potential consumer and business buyers of thin and very light notebooks looking at Apple’s MacBook Air and many choosing the Dell XPS 13 Ultrabook instead. This won’t just be based on price, but all other benefits I’ve outlined above. I also believe Apple’s MacBook Air sales will increase during 2012 but they would have sold more had it not been for Ultrabooks, especially the Dell XPS 13, the best Ultrabook I’ve used so far.
You can get more information on the Dell XPS 13 Ultrabook here on Dell’s website.
How Intel Could Achieve the 40% Consumer Ultrabook Target in 2012
There has been a lot of industry skepticism since Intel predicted at Computex Taipei 2011 that Ultrabooks would account for 40% of consumer portable sales by the end of 2012. That included skepticism from me as well, and I continue to have that skepticism. Rather than dive into that discussion though, I think it’s more important and productive to examine how Intel could conceivably achieve that goal.
What Intel is Actually Predicting
It’s important to understand what Intel means when they made their prediction. First, they are making the prediction for the consumer market, not the slower moving SMB, government, or enterprise markets. Also, the prediction is not for the entire year, it is for the end of December, 2012. That is, 40% of consumer notebooks by the end of December 2012 would need to be Ultrabooks. This makes a huge difference when evaluating the probability of this actually occurring.
So what would it take for 40% of all consumer notebook sales to be Ultrabooks by the end of 2012?
Make Ultrabooks Look New, Relevant, and Sexy
Intel and their ecosystem need make Ultrabooks perceived as new, relevant and sexy. By relevant I mean making the direct connection between what the Ultrabook delivers and what the consumer thinks they need. Sexy, is, well sexy, like MacBook Airs. The ecosystem must make a connection with:
- Thin and light– this is easier because Apple has blazed the trail and it is evident on the retail shelf.
- Fast startup– this is somewhat straightforward and a communicated consumer pain point with Windows today
- Secure– this is the most difficult in that it is always difficult to market a negative. It’s like life insurance; it sounds good, people say it’s important, then don’t buy it. I think Intel would be much more successful taking the same base technology and enabling exclusive consumer content or speeding up the on-line checkout or login process.
- Performance- this is difficult to market in that no longer does performance have a comparable metric and chip makers have appeared to stop marketing why it is even important.
- Convertibles- I am a big fan of future convertibles given the right design and OS. If OEMs can put together a classy, ~18mm design, it could very well motivate consumers to delay a tablet purchase. This will not work prior to Windows 8’s arrival, though because you really need Metro for good touch.
Probably the biggest impediment here is the “sexy” piece. Sexy is the “X” factor here. It’s cool to have an Apple MacBook Air. It isn’t cool yet to have an Ultrabook. A lot of that $300M UltraBook investment fund must pay for the Ultrabook positioning and re-positioning of anything Windows. This is a tough task, to say the least.
Steal Some Apple MacBook Air Market Share
Intel and their ecosystem, to hit the 40% target, will need to steal some of Apple’s market share. There is no way around this to achieve the 40% target unless they want to pull the dreaded “price lever”. Apple “owns” 90+% of the premium notebook market today and because Windows OEMs and Intel for that matter aren’t motivated to trash pricing now, they will need to steal some of Apple’s share. This will be a tough one, a real tough one particularly in that Intel shoots itself in the foot short-term by going aggressively after this one given they are inside every MacBook Air. So OEMs will need to take this one on their own, using Intel marketing funds as a weapon. This will be especially difficult given that Apple positioning isn’t going to be instantly erased by anything short term and Windows OEMs haven’t been able to penetrate this for years. Remember the Dell Adamo? Sexy, Windows 8 convertible designs could very well be the magic pill that could help steal share from Apple.
Lower Price Points
This is the last lever anyone wants to pull as it destroys positioning. Depending which data service you look at, the average consumer notebook ASP (average selling price) is between $600-700. This seems high, I know, when you look at what is being sold at local retailers, but remember that this includes on-line and Apple which has a higher ASP. Ultrabooks range from around $799 to $1,299 excluding Apple. This is well above the prices it would need to be to achieve the 40% goal. There are two ways to lower price; lower the cost or lower margins. I believe you will see a little bit of both.
As volumes increase, there will be immediate cost savings in expensive mechanicals like aluminum, plastic, and composites. Custom cooling solutions are very expensive required to cool thin chassis between 16-21mm in thickness. Tooling and design cost can be amortized over greater volumes to decrease the cost per unit. Intel Ivy Bridge, available in April 2012, will provide a shrink from 32nm to 22nm which would theoretically allow a lower price point at the same performance point, although I am sure Intel isn’t leading with that promise. Intel would much rather provide large marketing subsidies and pay NRE (non recurring engineering) costs to retailers and OEMS to design and promote the Ultrabook category. SSD is a tricky one to predict given spinning hard drive supply issues. Spinning hard drive price increases allow SSD makers to increase prices which doesn’t bode well for Ultrabook BOM costs in the short term.
Leverage Windows 8 Effect
The expected Windows 8 launch for the holiday of 2012 could help the Ultrabook cause on many fronts. First, it may give consumers a reason to consider buying a new laptop or notebook. I fully expect consumers to delay purchases and wait for Windows 8 to arrive. This could create a bubble in Q4 that, again, helps achieve the 40% goal.
Perceived Momentum
Finally, Ultrabooks need to get off to a solid start in 2012. Consumer influencers and the rest of the ecosystem needs to perceive UltraBooks as a success in 1H/2012 for them to “double-down” for 2H/2012. CES will be one tactic to do this, where I expect to see 100s of designs on display to demonstrate OEM acceptance to the press, analysts, and retail partners. Intel’s Ivy Bridge will give another boost in April, followed by the Windows 8 launch. Retailers cannot be stuck with excess inventory and cannot make drastic price cuts that would only deposition the category. Currently there is skepticism on the entire Ultrabook value proposition and the price points they can command so there is a lot of work to be done.
Will Ultrabooks Achieve the 40% Target by End of 2012
While this analysis is about what it would take to achieve the goal, I must weigh on what I think will happen. I like to bucket these kinds of things into “possible” and “probable”. I believe that if the Ultrabook ecosystem could accomplish everything outlined above, Ultrabooks could hit 40% of consumer notebook sales by the end of 2012. So it is possible, BUT, I don’t see it as probable, primarily due to the low price points that it will need to be hit. There just isn’t enough time to reposition a Windows notebook as premium and either raise price points of the Windows notebook category or steal Apple market share.
Is it Time for RIM to be Acquired?
The short answer is yes. And it seems like RIM’s investors are starting to chime in and suggest the company look for a suitor.
The technology industry landscape has changed drastically in the last few months. I have written in a number of our reports why we believe that in this new landscape some companies will be better suited to compete together rather than alone. I believe RIM is one of these companies who alone will most likely fizzle into nothingness.
In my column at Techland which is the tech section of Time.com, I explained all the things RIM needs to do if they want to stay relevant in the future. The one point i’ll now add is to be acquired. The main point being that RIM is not a consumer company.
They do not have the DNA to make, market and sell products to consumers. As a matter of fact I think the industry is learning that there are very few companies who do have the DNA to make, market and sell products to consumers.
I believe RIM has the DNA to make, market and sell products to the enterprise. Now we can debate that the consumer-ization of IT could impact any company only selling to enterprises, but that is for another time.
I firmly believe that if RIM is to stay relevant they need to focus on building hardware, software and services specially designed for the business class.
So then the question is who should acquire RIM? Well there is another company who I believe does not have consumer DNA, who is still in the hardware business, and who plans to focus more on the enterprise – that company is Dell. Dell should buy RIM.
Dell’s attempts at smart phones and tablets have yet to become market successes. The company needs help expanding its mobile footprint as a part of the overall Dell solution. Dell is a solutions company and they think like a solutions company. Mobile is a critical part of the Dell solution and the bottom line is they need help.
I believe DELL and RIM are a classic example of two companies who are stronger together rather than separate. With’s Dell’s market cap at just over $25 billion and RIM’s just over $15 billion this would be more of a merger than acquisition.
The real question is whether or not Michael Dell has it in him to do a deal like this. There is uncertainty how competitive an HP spinoff of the PC business could be and this makes for an interesting variable from Dell. Dell’s real concern however should be companies like Samsung and Acer who will be able to compete with them on price.
If Dell bought / merged with RIM I think the two companies could orient themselves to be extremely competitive in the enterprise solutions space. Enterprise is not the sexiest of business’ but it is better than having no business at all.