The PC Decline: Four Key Points to Note

The PC market is in decline

The PC industry isn’t getting any healthier. Both IDC’s and Gartner’s figures for PC shipments in the first quarter are out and both show the same direction of travel: down 11.5% to 60.6m units for IDC, down 9.6% to 64.8m units for Gartner.

There are some variations between what the two count as a “PC”: IDC doesn’t include Windows tablets, 2-in-1s such as the Lenovo Yoga, but does include Chromebooks; Gartner doesn’t include Chromebooks, but does include 2-in-1s and Windows tablets. (You might think comparing the two datasets would make it easy to spot who is doing well in Chromebooks, and who isn’t doing well in 2-in-1s or Windows tablets. Sadly, that turns out not to be true; but we can say Chromebooks account for only a few million sales per year and there aren’t any clear signs of that changing.)

At the moment, PC shipments have receded below the point they were at in 3Q 2006 (by IDC’s data); that’s nearly a decade of progress wiped out. It’s a category in retreat. The peak was in 3Q 2011, at 96.1m (IDC) or 95.4m (Gartner).

There are a few points to note in what’s going on.

The Long Slow Goodbye

First, Windows PCs are in serious long-term decline, more so than Apple. Once you subtract Apple’s contribution, you find Windows shipments have been in a year-on-year decline for 15 straight quarters. That’s nearly four years.

Windows PC shipments are falling

Something Happened

Second, the trigger for that decline is entirely unlike the trigger for previous declines in PC shipments. If you look at the long-term view, there are three points since 1999 when Windows PC shipments have shrunk: near the end of 2001 (during a worldwide recession), the end of 2008 (during the global financial crash), and towards the end of 2012.

Three points where Windows shipments fell

What happened in 2012? Nothing external. Instead, the decline seems to have been prompted by the twin thrust of tablets and smartphones. Tablets became broadly available (the iPad 2 dropped in price) and smartphone screens grew larger (the first Samsung Galaxy Note, with a 5.3in screen, had been launched at the end of 2011, and the Note 2 was coming along).

Ben Thompson, writing at Stratechery ($subscription), suggests PCs are being disrupted. What we’re seeing is “less capable” and cheaper devices (tablets and smartphones) taking over the jobs that were being done by much more capable devices. But the users didn’t generally need that capability; browsing, email, writing text, organising and uploading photos and watching video, plus a few games, tended to fill the gamut of what most people need to do on a computer.

Certainly, all the signs are that Thompson is right. That 2012 decline points strongly to a change and, at Gartner, Mikako Kitagawa says, “The ongoing decline in US PC shipments showed that the installed base is still shrinking, a factor that played across developed economies.” A shrinking PC installed base? That must be quite a worry. But it’s what we’re seeing.

Linn Huang of IDC offers something of a hostage to fortune: “The PC market should experience a modest rebound in the coming months.”

The Others

Third, anyone in the “Other” category is probably getting pretty worried now. Even Acer has fallen out of the top five computer makers, displaced by Apple. (I continue to include it, estimating its volumes as slightly below Apple’s.)

"Other" PC suppliers, absolute shipments

"Other" PC players are being squeezed out

If you take “Other” to be companies such as Toshiba, Samsung, Fujitsu, and a myriad of others, then both their share and absolute number of shipments is going in a bad direction:
• Toshiba is struggling with an accounting scandal, and its PC shipments in the US fell by at least 25% in the first quarter, from 0.94m to less than 0.71m. The “Lifestyle” division, which includes the PC business, has seen revenues nearly halved since the calendar first quarter of 2014, and made an operating loss for the past 15 quarters.
• Samsung has withdrawn from Europe’s PC business and is hard to see elsewhere; its PC business is rolled into its IM division, which also includes its mobile division, for accounting. In Q4 2015 (the latest quarter for which there are figures) those revenues were US$780m – which would translate to 1m PCs sold at an ASP of $780, or more possibly 1.5m sold at an ASP of $520, or 2m at $390. (To make the top five for Q4 required shipment volumes of at least 5m.)
• For the fourth quarter, Fujitsu says revenues from PCs fell; it’s been saying that for at least a year.

There’s also a squeeze on Asian sub-scale PC makers, because the dollar’s strength hits them hard when they have to source components from the US (Microsoft Windows, perhaps?). That eats into profitability while the bigger players corner more of the market.

All this is going to lead to further consolidation. There’s already talk that Toshiba or Fujitsu will sell their PC businesses. Smaller companies might just shut up shop or seek a buyer.

Apple: Doing Fine, Thanks

Fourth, Apple is still solid. The USB-C Macbook is a year old and doesn’t show any sign of having set the PC world on fire but since the end of 2004 (a period stretching 46 quarters), Windows PCs have only seen faster than Apple growth in two quarters. Even while Apple’s total shipments (according to IDC and Gartner, ahead of Apple’s formal results later this month) fell in the most recent quarter, it was still nothing like the overall fall for Windows PC makers. Only Dell managed to stay upright better on the slippery slope, falling by 2.0% against Apple’s 2.1% (IDC); Gartner reckons Apple did better, showing 1.0% growth, but was bested by Asus with a 1.5% rise – perhaps through Windows tablet or convertible shipments.

What neither shows is that Apple commands the highest average prices in the industry. Once the figures for this quarter are in I’ll return to the topic but, for now, here are the figures for average selling prices (calculated from company financials and IDC shipment figures) for the big six PC companies:

Average selling prices for top PC makers

As you can see, Apple is miles above the rest there. That also means it can grab a healthy profit, which allows it to stay in business when others struggle.


For the longer term? PCs are contracting towards a core base of users who really want or need them. If people want to be able to plug in USB sticks or SD cards, there’s a PC there for them. But it turns out that lots of people don’t and they’re voting with their wallets. That’s creating a squeeze on the smaller players, but even the big players don’t have it easy – unless, like Apple, they can charge a premium.

Truth And Lies Of Silicon Valley

It’s a privilege to write here, and a joy to focus on the long-term trends in technology, the rise and fall of companies and leaders, and the impact this region has upon not only America, but the entire world. I suspect Silicon Valley’s output will come to equal the impact of Detroit, my hometown, which effectively created the middle class, ensured the Allied victory in World War 2, and fundamentally altered how and where people live.

Silicon Valley is also a region that rivals Hollywood and Washington for talking about itself. It frequently displays the worst elements of both pack mentality and herd mentality, and aggressively covers up its failings, including a truly dismaying inequality in wealth and an almost gleeful ageism, all while insisting it knows best for California, the United States, for industry, for government, and for the world.

I now live here. These are my personal, unvarnished observations on Silicon Valley.

Almost all of the work in tech is done by companies and by people which tech bloggers pay scant attention to or worse, openly mock.

Patent lawsuits have about the best margins of any product or service in Silicon Valley. Consider that Apple recently won $290 million in a suit against Samsung. All told, Steve Jobs’ thermonuclear war has resulted in nearly a billion dollars in jury awards. If Apple only ultimately collects less than a third, $300 million, for example, that’s still about a 10X or greater return, no matter how they account for legal fees.

Does Coca Cola even make 10X on its syrup?

Computing is the new oil. The Silicon Valley “ecosystem” integrates smart people, start-ups, venture capital, and a cozy relationship between universities and for-profit corporations, has them all working at light speed and with almost zero consideration of the long-term or the existing order of things. It absolutely can be replicated in many parts of the world. This comes with a caveat, however. This area has optimized on this proven model while focused almost exclusively on computing (hardware, software, standards, apps, data, cloud, social media). Unless the copycats focus their efforts on computing-related activities, their returns will never be like what we have here. Note the very limited impact of Silicon Valley’s biotech efforts thirty years in.

Never, ever believe anyone that says Silicon Valley and Washington, DC do not mix. Washington, DC has the power, Silicon Valley has the money. The courtship is in full swing, and it’s far more than simply Washington leaders searching for big campaign contributions and re-election algorithms. Consider that under President Obama, the annual deficit alone is larger than the total value of Apple, the Valley’s biggest, richest company. Follow the money. Silicon Valley and Washington are the new Wall Street and Washington.

I always assume that any start-up whose value is based upon artificial limits is doomed. For example, Snapchat. The company is optimized for mobile, social media and the visual web. That’s almost a can’t miss. Yet, it is riding atop a temporal distortion, a gimmick whereby owners of digital content and services create artificial limits. In Snapchat’s case, the artificial limit is time (e.g. your picture or ad will vanish in 5,4,3,2,1). We all know this is not true. You may remember the briefly popular, and much-blogged-about Mailbox app, which created a sign-up list, despite the near-infinite scalability of such digital services. It may pay off in the short-term, but if you can’t cash out in the short-term, I suspect you will get burned.

There are real limits and there are made-up limits. If the limit is made-up, I don’t invest.

Speaking of investing, anyone using Snapchat for (illegal) insider trading may wish to re-consider their actions.

Almost everything you do online, and almost every time you carry your smartphone with you outside, is a far greater security risk than leaving your home WiFI open. Stop refusing to share. Stop handing over all your private data so easily.

Most people I meet here are very smart and work very hard. This is critical to their success — and to the region. Bonus: most that I meet are good people.

I have been around the world and all about this great country. Nowhere in the US is there a more socially inclusive environment than Silicon Valley — nor a more politically intolerant one. You will be branded if you are a Republican, a conservative.  Just so you know.

Connections matter above all else. Except, brainpower. If your brainpower sits atop the 0.1%, you will do exceedingly well. If  at the 1%, you will still do great. Nonetheless, and though I can’t say how many people at Apple have actual “humanities” degrees, I can assure you that you better have an engineering degree, science degree, and/or economics degree if you want a good job. It’s not about humanities or the social sciences out here.

Too many here are focused on creating the future or disrupting the current order, and not at all on preserving what is best. This is too bad. Think of all the great stuff we’ve been able to re-capture almost without trying. For example, thanks to iPhone, Yelp and Foursquare, I never again have to eat at fast food joints or franchise restaurants. Now, no matter where I am, I can find a great, local, mom-and-pop eatery. Similarly, classical music in the US, effectively dead on radio, is now readily available, for free, on Pandora and iTunes. I suspect the region is missing a giant opportunity is overlooking things to preserve.

We spend more on apps than on software.

I know of no one here who spends more on television than on connectivity. Internet, WiFi, smartphone and tablet connectivity wildly crush cable television, DVD rentals and the like. And yet, the new cool is to tell the world you’re going to stop reading email, stop tweeting, maybe go off-grid for a week or two. In my experience, no one who tells you this is ever telling you the truth. To be disconnected in Silicon Valley, even for a moment, is to be without air.

In physical space, absolutely no one ever mocks anyone for their choice in smartphone or computer.

Perhaps because there are so many smart, competitive, reasonably well-off people here, but attractiveness and fitness command a premium.

The rest of the world will know soon enough: the best source for breaking news is Twitter. The best links to the best analysis of current events is via Twitter.

In Silicon Valley, the cloud is your real hard drive and your physical hard drive is just a backup, likely to crash.

The last thing we see at night and the first thing we see in the morning is our smartphone.

We get our music recommendations come from iTunes and YouTube.

Design is hard. Really hard. BMW has been making cars for about 100 years. The new 750i is ugly. If BMW still can’t get car design exactly right, 100 years on, it’s probably no wonder that so much hardware, so much software, so many apps, nearly every UI design is so poor. Still, bad design is an obvious failing, with Silicon Valley a leader.

In my time here, I’ve witnessed radically more communications failures and personal angst based on people with obviously different Myers-Briggs assessments than on whether the person was black or white, male or female, for example.

There are so many people out here, so many cars, so little space. Yet barring a literal seismic catastrophe, I believe this area is on a growth trajectory that will continue for at least another generation or two.

The Simple Shocking Failures of Microsoft Google Facebook Apple And Silicon Valley

Silicon Valley companies love to remind us they are on a mission to change the world. Perhaps, although I confess I’m slightly suspicious given their obvious relentless pursuit of funding, acquisitions, getting acquired, going public, and generating piles of cash.

And because so many things they offer us — things that really ought to work, every time, anytime, no questions asked — fail so miserably. This list, it seems, is endless.

Email gets a pass. Siri is so thoroughly ineffectual and so utterly counter to its advertising that I’m not even going to include it here. Wouldn’t be fair. Same with the industry’s tragic dependence upon advertising, which now litters nearly every real, physical, virtual and digital space any of us might occupy. But there’s far more than these, of course. My smartphone ought to know how I feel, right this moment. After all, what contains more data on me, about me, historical and present, than my smartphone? Know how I feel and play a song to match my mood, for example. That would be awesome. Only, that’s asking for too much, I suspect. I mean, has Apple’s “genius” service ever worked for anyone, ever? I’ve received better music and movie recommendations from my mother — and she neither listens to music nor watches movies.

There may be unknowable failures, of course. Perhaps with Google and Amazon giving us so much for free in return for using their service, we are creating a future America that believes everything should be offered at no price, or that profit is unnecessary to sustain a business, or that we are all entitled to something, anything, without ever paying for it. That’s a potential massive dependency failure. Only, I am merely concerned with the obvious failures. Those instances where some lone wolf at each of these companies should not have even had to point it out because it ought to have been so obvious to everyone involved.

Why is it that practically every single smartphone ever built can’t seem to recognize that the WiFi it is connected to isn’t actually connected to the Internet — so switch over to cellular, already! In a world where I can tweet from a jet 30,000 feet above the ground, this should not ever happen.

Any site that demands I first log-in using Facebook is a failure — and an affront to decency. Imagine any physical retail store doing the same.  Similarly, any site that allows us to log-in using our Facebook credentials should not ever receive more than confirmation of our identity. Our location, contacts, friendships and long history on Facebook should not ever be handed over without our explicit and ongoing consent.

Too often, Instagram videos fail to play on my iPhone. On my Mac, Twitter Vine videos fail more often than they work. I’ve stopped clicking on Vine links, in fact.

Printing from an iPhone or iPad is a joke.

Windows 8 — and I promise you, I am no Microsoft hater — is so inexplicably, almost painfully user-unfriendly that, and I am serious here, every other thing Microsoft has done right, and every other thing they have achieved, and despite all their money, and ignoring the ascendency of iOS and Android and the rise of iPad in the workplace, the breadth and scale of of the Windows 8 OS failure is such that it could literally take down the entire company.  Microsoft could absolutely afford to be years behind in the smartphone wars and could absolutely drop billions and billions more on online services and go through a succession of just terrible post-Ballmer CEOs and could be outright hostile to the consumer market — if such a thing exists — and  they could still dominate the enterprise for at least another generation. Except…Windows 8 is so shockingly hard to use, so determinedly strategy over function that I now believe it’s a very real possibility that Bing will be worth more than Windows before this decade is out. I say this absolutely as someone who wants this great American company to thrive — and as someone who fully believes that Microsoft’s singular UI strategy and flat “live tiles” design is still the right one. As someone who cares, I cannot emphasize this enough: fix it.

It’s a failure for my hometown that Amazon somehow gets away with selling billions of dollars of goods without charging its customers sales tax.

It’s a failure that I can’t have my “smartphone” ignore every single call that does not include the number and person (or business) calling.

Has Eddie Cue every actually used iMessages? Or Maps?

When Jony Ive flies from San Francisco to London, at what point does his iPhone batter fail him? For me, it’s much too soon.

In return for a never-ending wave of our most personal information, Google promises us instant, usable search results. Yet when I enter “Brian S Hall” I am instantly offered 286 million results. That is a stupid failure.

That the entire tech sector has done next to nothing to make it so we don’t all have to pay near-criminal prices to HP and Canon for printer ink is a massive failure.

Similarly, it remains far too hard to move the pictures from my smartphone onto my computer(s) and to the cloud, and back again, and share them with exactly who I want. Probably every single user on the planet wants this, deserves this, and still can’t have it. Fail.

How is all this possible? Is it because for too many of the indicted companies, they believe that historic marketshare is an excuse? Or that free equals just good enough? Or that they will eventually get to it? Yet Google thinks I might get inside their driverless car?

With all the data Google collects on us — who we are, where we go, what we search, what we buy, going back forever — how is it that the only predictive service they can offer is Google Now? Which is little more than the weather and local bus schedule.

Why does Facebook insist on curating my newsfeed despite my repeated requests to give me everything, most recent to least, in order, every single time? If Mark Zuckerberg can’t trust me with that gushing flow of information, perhaps I shouldn’t trust him with the drip drip drip of my personal data.

It’s the second decade of the twenty-first century and far too much that comes out of Silicon Valley is broken. This makes me suspect everything they say and do. Yes, obviously, I want world peace, an end to hunger, longevity, joy and prosperity. But until the industry can get the tiny features of our most popular technological products actually working properly, those will have to wait.

Is Apple Making A Play For the PC Market Too?

Everyone knows that Google’s Android operating system dominates phone market share, Apple’s iOS operating system dominates tablet market share (for now) and Microsoft’s Windows dominates PC market share. While Windows is shrinking in overall market share – if you combine phones, tablets and notebooks/desktops together (and you should) – it has, until now, been a given that Windows will continue to dominate the massive, but shrinking, PC marketplace.

But is that true?

— The MacBook Air used to be a high-priced luxury product for Apple. Now it is their lowest priced, base model. For a thousand dollars, you get one of the lightest, fastest, most powerful notebooks on the market.

— Windows owns the low-end of the market, but the low end is being swallowed whole by tablets. When faced with a choice between a bottom-of-the-line $350 HP or Dell notebook and a top-of-the-line $350 iPad Mini, many consumers are opting for the latter.

Apple has captured 90 percent of the PC market for machines over $1000 since 2009. And given the rapid collapse of the PC market (at the hands of Apple’s iPad and smartphones), that’s a pretty sweet segment of the market to own. ~ AppleInsider

Microsoft has virtually no presence in either the phone or tablet markets. But they also have virtually no presence in the high end of the PC market either. And that’s the only end of the market making money and, in the long-run, it may be the only end of the market that survives the invasion of phones and tablets, too.


Source for Graphic: NPD Group

HP ENVY X2: One Step Closer to the Hybrid Future

As a technology analyst, I spend a lot time analyzing and keeping the pulse on the latest in inflection points, the ones that matter. Modularity is one of those factors and will be an specs_laptop_front_tcm_245_1287690important thing to keep an eye on for the next 5-10 years. In present day, modularity is important with the smartphone to the TV and the tablet to the keyboard, the latter the subject of this analysis.

The entire PC market is in a bit of a funk driven by the macro-economic environment, but primarily driven by consumer’s fascination with smartphones and tablets. Many consumers voted in 2012 to buy a new tablet, upgrade their phone rather than upgrade their PC.  Hybrids and convertibles over time will change this and I believe 2014 is the year where consumers will view PCs as perceptually cool again. The process will start this year, but end in 2013.

Tablet hybrids first came officially on the scene with the Asus Transformer, an Android-based tablet that fit into a keyboard. I have spent a lot of time with hybrids from the Transformer to the Samsung ATIV to the Surface RT and now after having spent a month with a new device, I will share my experiences with HP’s ENVY X2 latest consumer hybrid.  The X2 is very different from the predecessors I tested before it.

The first thing that’s different about the X2 is its striking, all-brushed aluminum design. During my month with the X2, I visited three different countries and spent a lot of time in airports and trade shows floors where I took the X2. Many people would ask me what is was and comment on the design. In tablet mode, it is extremely thin and feels like an iPad but an 11.6″ one. In laptop mode, some people thought it was a MacBook Air until I popped off the tablet. When I pulled off the tablet, every single person said “wow”. The power and volume buttons are flush with the system and designed to be used without the user re-orienting the device which is a nice attention to detail.

Weight and Dimensions
The X2 weighs in at 3.11 lbs, which is a bit heavy for an 11.6″ notebook, but aluminum isn’t plastic, which is lighter. This is a design trade-off that consumers will usually always accept as long as it is near that 3 lb. mark.  As a tablet, I didn’t feel like I was straining, either.  My guess is that it is heavier than the MacBook Air because it needed counter-weight in the keyboard to keep the unit from tipping over, as all the major components are in the keyboard.

Keyboard and Trackpad
The hybrid comes with a full-sized keyboard with full-sized trackpad that is responsive to the full Windows 8 gesture set. Most hybrids cheap-out on the trackpad and I think the use of Synaptics is to be commended. I wrote everything including research papers on the keyboard which has function keys, delete keys and arrow keys and never felt cramped.

Thankfully, the product managers didn’t cheap out on the multimedia features. The X2’s rear camera is 8MP which is much appreciated at volleyball and basketball games. Yes, I am one of those annoying parents taking video with a tablet. My rationale is that it is better than on my phone which will suck the batteries dry. If you don’t understand this then you probably haven’t spent three, 10 hour days of club-level volleyball with your  kids.  The camera also has a very bright flash, unique in its class. The front facing camera supports 1080P video, much appreciated on Skype. In the follow on products, I would like to see some work done on the camera subsystem to take pictures as fast and as high quality as a phone.  This is primarily of the Intel Hive-acquired ISP.

At 11.6″, the display was large for a tablet and perfect for a highly mobile laptop. The 1366×768 resolution is perfectly fine for notebook mode and even watching movies. I love higher-res displays like Retina, but there are certain use cases a user must have them so they don’t see pixels or need the fidelity for photos. This isn’t one of them as an 11.6″ display tablet isn’t the one you will use in bed and read a book on. That’s better territory for the Nexus 7 or ipad mini. The closer the display is to the eyes, the higher the res should be so you don’t see pixels unless you must see original view of pictures.

Compared to just a tablet, the X2 offers the full sized keyboard and trackpad that converts it into a small notebook. The tablet holds one microSD card slot for photo or data transfer. The keyboard dock has a much-appreciated full HDMI connector and a full-sized SD card slot for inexpensive mass storage. I really appreciate the full HDMI slot as I cannot tell you how many of the iPad HDMI adapters I have lost.  The dock also has two USB 2.0 slots and mini-connector for speaker and mic. After my long business trips, I appreciated coming home and connecting the X2 to my 32″ display extending my experience even further.

I dropped the X2 (unintentionally) twice on concrete floors and I can say the unit fared a lot better than I expected. Using many devices, I have broken many devices and I have broken three iPads. After my unexpected drop-test, the unit suffered only scrapes but no cracked display.

Software and Hardware
The HP hybrid runs all Metro-based apps as well as Windows desktop style apps. This is great and I really appreciated using Outlook with Google Sync plug-ins, fully-synced Google Drive, Google Chrome and Evernote. While I consider myself a sophisticated user and know the limits of the system, I can see how a general consumer could easily overload the system. While the dual core, four thread Intel Z2760 (aka Clover Trail) is good in its class, it’s not the processor you can do everything a Core i Processor is designed to do. On occasion, I had too many Google Chrome windows open and the system came to a crawl. I also found myself running out of storage space due to my own fault of putting my Google drive and Outlook .OST on the C drive. I didn’t feel comfortable putting it on the SD cards because I have sensitive and confidential information there. I am very much looking forward to Intel’s next generation Bay Trail in this form factor.

As with full Windows 8 and X86 processor, I can connect just about every hardware peripheral I have and it just works. I connected all my mice, cameras, printers and they just worked.

Battery Life
The X2’s battery life was the biggest shocker. In tablet mode, I got around nine hours with the tablet and with the keyboard, I got around 14 hours. I didn’t do official benchmarking, but I did test while on many transcontinental trips where I was writing research papers.

Price is a challenge to place a verdict on because the X2 is just so versatile. Launch pricing was set at $849 for the 64GB-WiFi edition but right now, the unit is selling for $599 on sale, which is an absolute steal. At $849 one must compare it to the MacBook Air which starts at $999 and apply value to touch, convertible design, and battery life and deduct for Core i5 performance. At $599, the X2 with keyboard is a no-brainer as compared to the 64GB iPad 4 at $599.

The HP ENVY X2 shows that hybrid designs are evolving to a point where in late 2013, early 2014, consumers will need to find some other justification to pay $499 for a tablet-only design that doesn’t elegantly dock in a very integrated fashion. By elegant and integrated, I’m not talking just about adding a Bluetooth keyboard, but deeper integration like that of the X2 and beyond. By 2014, no premium-priced (499+) tablets will sell well that cannot do this and OEMs and ODMs will need to address this and invest in better modular capabilities.  And as Apple scorned video on the iPod and 7″ tablets, I am sure they have a few prototypes of a few “fridge-toasters” in test which would make for a very interesting 2014.

The Mobile Train Has Left The Windows 8 Platform Behind

images-42Yesterday, 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.


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.

HP’s Surprising Tablet Attack

I recently attended HP’s Securities Analyst Meeting (SAM) where HP made its case to Wall Street on why investors should believe in
the company and buy the stock. I will write about the conference later when I have thought through the content a bit more, as, unlike financial analysts, I need to think three to five years out. Thinking short term about HP doesn’t do anyone any good. What I do want to talk about are two of the products shown at SAM, a new impressive tablet lineup.

The tablet market right now is exhibiting all the traditional signs of any tech market. You have a lot of experimentation going on right now to see what consumers and business users really want. Apple, like the early days of the consumer PC, is punishing everyone who stands in its way in the tablet market. If you have any doubt on that, just ask Motorola, RIM, Samsung, and anyone attached to webOS. As experimentation progresses, the markets starts to settle into more of a predictable rhythm and then after that, massive segmentation and specialization will occur. This is classic product lifecycle behavior. HP, like Dell and Lenovo have learned a lot over the last 18 months, and HP, in particular, put the pedal to the metal with their latest tablets.

HP segmented its line into a consumer and large enterprise line. What about small business? Too early to know and quite frankly this will be the last market to adopt tablets, so I like this decision. Technologically, HP has opted to forgo ARM-based technology in its latest offering and instead has opted for the Intel CloverTrail solution. Only after we all see pricing and battery life will we know if this is a good decision. Let’s dive into the models.

HP ENVY x2 for the Consumer
The first time I saw the ENVY x2 at the Intel Developer Forum I was stunned, quite frankly, at how thin, light, and sexy the unit was. My latest Intel tablet experience was a thick and heavy Samsung tablet with a loud fan used for Windows 8 app development. The HP ENVY x2 wasn’t anything like this as it was thin, light, fan-less, and sexy industrial design made from machined aluminum. No, this didn’t feel like an iPad… it felt in some ways even better. This is a big thing for me to say given my primary tablets have been iPads… gen 1-2-3. It is very hard to describe good ID in words, but it just felt good, real good.

It was apparent to me that HP stepped up their game in design and after talking with Stacy Wolff, HP’s Global VP of design, they have amped up resources a lot. While most of Intel’s OEMs are focused on enterprise devices, this consumer device stands out. The only thing that could potentially derail the ENVY x2 is Microsoft with a lack of Metro applications or too high a price tag. Net-net I will need to see pricing and Windows 8 Metro launch apps before I can assess what this will do to iPad and even notebook sales.

HP ElitePad for Commercial Markets
Let’s face it, commercial devices run counter on many variables to what consumers want. The tablet market is no different. Enterprise IT wants security, durability, expandability, cheap and known deployment, training, software, and manageability. Consumers want sexy, cool, thin, light, easiest to use, and based on the amount of cracked iPad screens (mine included), durability is not that important. HP has somehow managed to cross the gap between beauty and brawn in a very unique way. When I first saw the ElitePad, I thought it was a consumer device. It even has beveled corners to make it easier to pick up off the conference table!  Like the ENVY x2, it also feels like machined aluminum.

The ElitePad, because it has at its core an Intel CloverTrail-based design, can run the newer Metro-based Windows 8 apps and legacy and new Windows 8 desktop apps.  IT likes to leverage their investments in software and training, and they will like that they can run full Office with Outlook as well as any corporately developed apps without any changes.  You don’t want to be running Photoshop on this as it is Atom-based, but lighter apps will run just fine.

IT “sees” the ElitePad as a PC. Unlike an iPad, it is deployed, managed and has security like a Windows PC. For expandability, durability and expanded battery life, HP has engineered a “jacket” system that easily snaps around the ElitePad, which felt to me like the HP TouchPad. The stock jacket provides extra battery life and a fully bevvy of IO including USB and even full-sized HDMI. If HP isn’t doing it already, they should be investing in special jacket designs for health care, retail, and manufacturing. Finally, there is serviceability. While I don’t want to debate if throwing away a device is better than servicing it, IT believes that servicing it is better than tossing it in the trash. For large customer serviceability needs, HP is even offering special fixtures to easily service the tablet by attaching suction cups to the surface and removing the display. Net-net, this is a very good enterprise alternative to any iPad enterprise rollout.

I am very pleased to see the care and time put into the planning and design of these devices. The three unknowns at this point are pricing, battery life and Windows 8 Metro acceptance and the number of tablet apps. If there are a lack of Metro apps at launch, the entire consumer category will be in jeopardy in Q4, but commercial is quite different as ecosystems can grow into their show size over time. I cannot give a final assessment until I have actually used the devices, but what I see from HP in Windows 8 tablets is exceptional.

HP’s Future: Apple, IBM–or Dell?


HP logoOn Oct. 3, Hewlett-Packard CEO Meg Whitman will give analysts her strategy for restoring the battered tech giant. A close look at the company’s financials and its business suggests that it has the strengths to stay around for a long time. But years of boardroom drama have taken a heavy toll that make it difficult  for the company to return to industry leadership.

How does HP make its money? As the table below shows, more than half its revenues come from personal systems, primarily Windows desktops and laptops for consumers and businesses, and from imaging and printing, a line of business ranging from $50 inkjets to Indigo presses for commercial printing. Services, largely enterprise systems integration and outsourcing, contribute about 28%, and enterprise servers, storage, networking, and software most of the rest. The problem is simple: The companies HP wants to be most like are Apple on the consumer side and IBM for enterprise. But the company is that the company it currently most resembles is Dell.

 HP 2011 Performance by Sector

Net revenue Share of sales Earnings from operations Net margin Share of earnings
Personal Systems 39,574 30.4% 2,350 5.9% 15.1%
Services 35,954 27.6% 5,149 14.3% 33.1%
Imaging & Printing 25,783 19.8% 3,973 15.4% 25.6%
Enterprise Servers, Storage & Networking 22,241 17.1% 3,026 13.6% 19.5%
Software 3,217 2.5% 698 21.7% 4.5%
Financial services 3,596 2.8% 348 9.7% 2.2%
  Total from operations 130,365 100.0% 15,544 11.9% 100.0%

A SWOT analysis–strengths, weaknesses, opportunities, threats–is useful for assessing HP’s prospects.

Strengths: For all its recent problems, HP has the most important thing for a company in need of reinvention–a solid financial base. It remains nicely, if not spectacularly, profitable and has strong cash flow. It is the dominant player in its two largest sectors, PCs and printing. It has mastered supply-chain and channel management, It competes on a global scale and enjoys strong worldwide brand recognition.

Weaknesses: Unfortunately for HP, this is a much longer list. The overarching problem is a consequence of endless boardroom turmoil. Mark Hurd replaced a flailing Carly Fiorina. He dramatically improved execution, but at the expense of ruthless cost-cutting that trimmed muscle as well as fat. Hurd’s dramatic ouster was followed by the brief, disastrous tenure of Léo Apotheker. When Whitman was appointed, she took command of a disoriented and badly demoralized company, knocked between post and pillar by ever-changing top-level strategies. Given that, it’s a wonder that HP isn’t in worse shape than it is.

Personal systems is #1 in many of its markets. According to Gartner, HP has been tops in worldwide unit PC volume for five straight years. It beat back a surging Acer, though it is now threatened by a rising Lenovo. The problem is that these are largely commodity markets in which HP’s products offer little differentiation and not a lot of profit. And the question facing the traditional PC business is not whether it will decline, but how quickly.

C0mpaq iPAQ (Wikipedia)The action is moving to phones and tablets, and HP is not yet a player in either market. HP was a leader in handheld devices in the pre-smartphone era. The Microsoft PocketPC-powered iPAQ, acquired when HP bought Compaq in 2001, was the most successful challenger to Palm in the PDA market. But unlike other PDAs, the iPAQ failed to evolve into a phone and HP was left behind.

HP’s 2010 purchase of Palm was supposed to solve two fundamental PSG problems: Its weakness in mobile and its total dependence on Microsoft for critical software. It was a bold plan, and PSG chief Todd Bradley talked bravely of a version of webOS that would run on Windows PCs to give a unified experience across PCs, phones, and tablets. Unfortunately,  Apotheker wanted to dump PSG, not invest in it. The webOS operation was tossed in a cell, starved, and ultimately taken out and shot, leaving HP without a dog in the increasingly important mobile fight.

HP’s enterprise businesses–hardware, services, software, and financing–contribute about half of sales and about 60% of profits, but they are hardly industry stars. This years, HP took an $8 billion writedown of its 2008 acquisition of EDS and its 2011 purchase of Autonomy enterprise analytics software–at an $11 billion price that many analysts considered too high–has yet to pay dividends. HP continues to be a pale challenger to industry leader IBM in nearly all enterprise categories and the jury is still out on its challenge to Cisco’s dominance of enterprise routing,

Threats. The failure of the webOS strategy left HP more beholden to Microsoft than ever. HP have a reasonably attractive line of products including Ultrabooks, hybrid tablets with keyboard docks, and straight tablets ready for the Windows 8 launch. For the time being, HP has decided to forgo entering the Windows RT (ARM-based) tablet market infov of Intel-powered Windows 8.

One challenge is that the introduction of the Surface tablets, Microsoft is also becoming a competitor. For HP to get into the mobile game, it needs Windows 8 to make it big, but without Surface becoming the iPad of Windows products. This could end up being a very narrow path.

HP also has to complete its portfolio with a smartphone line. Having blown the webOS opportunity, HP’s only real choices are Windows Phone 8 and Android, and HP’s general Windows-centricity argues for WP8. But once again, that would leave HP at the mercy of Microsoft’s success, and competing as a new entrant against HTC and Nokia, the latter having bet the company on Windows Phone.

The printer business continues to be a cash cow for HP, with sales of high-margin ink and toner providing reliable annuity income streams for some years to come.  It’s also true, however, that printing is in a long term secular decline that is likely to accelerate as tablets replace printed documents. This will cut into HP’s sales of generally low-margin printers and hihgly profitable consumables.

HP’s enterprise service business is big and reasonably profitable, but it is concentrated in the relatively low end of the business, such as operations outsourcing, rather than the high-end integration dominated by companies such as IBM and Accenture. HP has to find a way to push its way up the food chain.

Opportunities.  The data center switching and routing market is ripe for disruption. HP is pushing its OpenFlow technology hard as a software-based alternative to specialized, dedicated hardware (read Cisco.) HP is right about the direction of technology, but Cisco has read the same tea leaves and has shown itself to be a nimble competitor.

Autonomy was a big play to get into the fast growing but fragmented enterprise analytics market. The high price will limited the return on investment in purely financial terms, but if HP makes it work, it could make the company a much more significant enterprise software player.

HP’s culture—the vaunted “HP Way” created by Dave Packard and Bill Hewitt–has taken horrible blows in recent years. HP Labs, once second only to IBM Research in the industry, has been hollowed out by savage budget cuts and staff reductions. But HP is still an engineering company at heart and retains a great deal of talent waiting to be used effectively. That–not spending cuts, better marketing–is the only real route to HP’s long-term success,




Ultimately, HP, You’ve Got To Do Something

Via All Things D:

“We have to ultimately offer a smartphone…” ~ Hewlett-Packard CEO Meg Whitman

When exactly is this “ultimately” going to be?

“My mantra to the team is: ‘Better right than faster than we should be there.’” ~ Meg Whitman

What? Say what?

(W)e’re working to make sure that when we do this, it will be the right thing for Hewlett-Packard, and we will be successful. ~ Meg Whitman

Are you also planning on jumping in on the hot new “horseless carriage” business? Or investing in the Pony Express? In case you haven’t noticed, the smartphone market isn’t waiting around for you to “ultimately offer a smartphone.”

There’s a time and place for things and this is no time to be telling us that you’re “ultimately” going to be making a phone.

Stop telling us that you’re going to do something. Do something.

Why the PC Industry Cannot Ignore Smartphones

When HP abandoned their smartphone and tablet business and webOS last August, many in the industry were hp-veerdisappointed in the speed of the Palm acquisition and the quick dismantling of it. Some who consider themselves "business-savvy" said it was the wise approach as it wasn’t core to HP’s corporate mission. They said that smartphones were a distraction to competing with IBM and even Dell. We won’t know until 3-5 years from now whether it was a good decision or not.

I believe though, that just as PC companies fought to stay away from the sub-$1,000 PC market in the 90’s, PC makers who don’t embrace smartphones could be out of the client hardware business in 5 years.

Some Context

Over the last 20 years, PC hardware and software have done this little dance where one is ahead of the other. New software came out that required better hardware, then the new hardware outpaced the old software and the cycle continued. With the better hardware and software came new features and usage models like multimedia, desktop publishing, 3D games, DVD video, videoconferencing, digital photography, the visual internet, and video editing. Then Microsoft Vista was launched and it seemed no matter how much hardware users threw at it, issues still existed. Microsoft then spent the next few years fixing Vista and launched Windows 7 instead of developing environments for new rich client usage models. Windows 7 actually took less hardware resources than Vista, the first time a Microsoft OS could say this. Microsoft is even publicly communicating that Windows 8 will take less resources than Windows 7. So what happened? Did the industry run out of usage models to consume rich PC cycles? No, there are many usage models that need to be developed that use rich PC clients.

What happened was netbooks, smartphones and tablets. Netbooks threatened Microsoft and forced them to re-configure Windows XP for the the small, cheap laptops. This was in response to the first netbooks, loaded with Linux, getting shipped into Best Buy and direct on the internet. In retrospect this wasn’t a threat to Microsoft, as those netbooks had a reported 50%+ return rate. After netbooks came MIDs and after MIDs failed came touch smartphones and the iPad. Once the iPhone and iPad showed strong sales it was clear that the center of design was moving to mobility even though needs the rich client PC could solve didn’t just go away.

Windows 8 and Rich PC Clients

Windows 8 was clearly architected to provide a tablet alternative to the iPad and stem the flow from Windows to iOS and Android. Most of the work has been to provide a new user and development environment called Metro, WinRT and to enable ARM SOCs. None of these investments does a single thing to propel the traditional rich PC client forward, maybe with the exception of enabling touch on an all-in-one desktop. Without Microsoft making major investments to propel the rich client forward, it won’t move forward even to the dismay of Intel, AMD and Nvidia. I want to be clear that there are still problems that the rich client PC can solve but the software ecosystem and VC investment is enamored primarily with tablet, smartphones and the cloud. Without Microsoft’s investment in rich PC clients, thinner clients like phones and tablets will evolve at a much faster rate than rich PCs.

The Consequences of Not Investing in the Rich PC Client

With the software ecosystem driving "thin" clients at a much faster rate than "rich" clients, the consequences start to airplaytvemerge. We are seeing them around us every today. Users are spending more time with their tablets and smartphones than they are with their PCs. Savvy users are doing higher-order content creation like photo editing, video editing and even making music with GarageBand. That doesn’t mean that they don’t need their PCs today. They do, because neither smartphones nor tablets can do everything what a PC or Mac can do…. at least today. Display size, input method and lack of software modulraity are the biggest challenges today.

Enter Smartphone Modularity

Today, many users in traditional regions require at least a smartphone and a PC, and a tablet is an adder. Tomorrow, if users can easily attach a keyboard to a tablet via a convertible design, they may not need a PC as we know it today. It’s not a productive discussion if we debate if we call this a PC with a removable display or a tablet with a keyboard. What’s important is that some users won’t need three devices, they’ll just need two.

What about having just one compute device, a smartphone, and the rest of the devices are merely displays or shells? Sounds a bit aggressive but lets peel this back:

  • Apps: If you believe that the smartphone ecosystem and apps moves a lot faster than the rich client ecosystem, then that says that thin clients at some point will be able to run the same rich apps as a PC. Then the question becomes, "when".
  • OS/Dev Environment: iOS, Windows, and Android are all becoming modular, in that their goal is that you write once and deploy everywhere. Specifically, write once for a dev environment and deploy to a watch, phone, tablet, PC and TV or console.
  • Hardware: Fixed function blocks and programmable blocks on tablet and smartphone SOCs are taking over many of the laborious tasks general purpose CPUs once worked on. This is why many smartphones can display a beautiful 1080P video on an HDTV. This is true for video decode, video and photo cleanup, and natural user interfaces too. 3D graphics will continue to be an important subsystem in the SOC block.
  • Display: With WiDi, WiFi Direct, and WiFi AC on the mainstream horizon, there’s no reason to think that a user cannot beautifully display their apps from their 4" smartphone display to a 32" high resolution PC display. Today with my iPhone 4s airplay movieI can display 1024×768 via AirPlay mirroring with a little lag but that’s today via a router and WiFi network. I can connect today via hardwire and it looks really good. In the future, the image and fonts will scale resolutions to the display and the lag will disappear, meaning I won’t even need to physically dock my smartphone. It will all be done wirelessly.
  • Peripherals: Already today, depending on the OS, smartphones can accept keyboard, mouse and joystick via Bluetooth, WiFi or USB. The fact that an iPad cannot use a mouse is about marketing and not capability.

Smartphone Modularity a Sure Bet?

As in life, there are no sure things, but the smartphone and cloud ecosystem will be driving toward smartphone modularity to the point where they want you to forget about PCs. Apple, Microsoft, and Google are building scalable operating systems and development environments to support this. Why Microsoft? I believe they see that the future of the client is the smartphone and if they don’t win in smartphones, they could lose the future client. They can’t just abandon PCs today, so they are inching toward that with a scalable Metro-Desktop interface and dev environment. Metro for Windows 8 means for Metro apps not just for the PC, but for the tablet and the Windows smartphone. The big question is, if Microsoft sees the decline of the PC platform in favor of the smartphone, then why aren’t all the Windows PC OEMs seeing this too? One thing I am certain of- the PC industry cannot ignore the smartphone market or they won’t be in the client computing market in the long-term.

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.

Chart: Apple per share earningsApple’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.

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.

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.

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.

Why webOS Deserves Another Chance

My colleague at Tech.pinions, Steve Wildstrom, wrote a great piece last Friday that chronicles Palm’s past and suggested that webOS is at the end of the road. While he may be right, a part of me wants to think that at least Web OS could live on even if Palm as we knew it has lost most of its key staff and any talent left have been absorbed into HP.

webOS got its first chance for life inside Palm, and its second chance when HP bought Palm and made a commitment to use it as an alternative mobile OS to Android.

The key reason for HP’s decision to buy Palm, and use webOS, is that after years of being tied to Windows and then looking at the prospect of being caught up in a similar relationship with Google and Android for their mobile devices, they made the calculated decision to back webOS. And in buying it, it was supposed to assure them that at the mobile device level, they could finally control their own destiny and not be forced to back Android and all of the things Google demands associated with Google product attachments in order to use it.

Not long after Palm started development of webOS, our firm, Creative Strategies, was asked to look at this new mobile OS and work with them on mobile use cases. As a result of this project, we got to see webOS up close and through this exercise, we began to understand that this was, at the time, the best mobile OS available. Since we did that project, Android and iOS have emerged as major operating systems for mobile devices, but from our work with webOS, we still consider it better than Android and in some ways equal to iOS.

One of the things we discovered early on is that webOS is built on WebKit and as a result, software developers can use standard Web development tools to create apps. We saw this as a real advantage since it meant that Web developers as well as professional software designers could write apps and we expected a robust eco system of apps to evolve quickly.

However, HP was slow in getting an actual tablet to market with webOS and given the competitive landscape, it was pretty much DOA when it did finally ship. And as you perhaps know, Their webOS tablet was killed after only a week on the market.

Last Friday, HP’s CEO, Meg Whitman apparently said in some media interviews that HP would bring out a webOS tablet in 2013. However, I went back to HP to clarify that statement and while my sources did not refute what she said, they hinted that what they most likely will do is look for new form factors to use for supporting Web OS and that a tablet may be one of them, although that is not in stone at the moment.

For now, webOS will move into an Open Source environment and although HP will have a dedicated team of developers contributing to the further development of Web OS, now many other developers can also add to and enhance webOS as well. That means that webOS should get even better than it is today. Given that perspective, I would like to suggest that webOS could and should have a third chance at life in the mobile market.

One key reason is that webOS is really an excellent mobile OS that is built on a strong foundation and is easy to develop for. Another reason is that to date, there have been no legal or patent claims against it and as far as I can tell, it is legally the cleanest mobile OS available. And third, smartphone and tablet vendors are still interested in a third OS or more specifically an OS in which there are no strings attached.

This last item is important. Samsung recently decided to back a third OS called Tizen (formerly known as Moblin, ) as they wanted an OS that they could control on their own. But they chose Tizen because webOS was not available and at the time, Tizen was the best option available that they could choose. Many in the industry thought Samsung would actually bid for webOS after HP said the were going to drop this OS, but its price tag back the was probably over $1 billion. But now, with it going to Open Source, it would not surprise me if some of the tablet vendors, especially those on the fence when it comes to backing Windows 8 for Tablets, decide to use webOS at least for their consumer products even if they have Android products in the works. The main reason they might consider this is that with webOS they would have control of their own destiny and not be forced to adhere to and be driven by Google and Microsoft on future products.

I don’t know if webOS will gain traction, but given the fact that it is a great mobile OS that is very easy to develop for, and one that would give vendors more control of their mobile futures, it would be a shame if it does not see the light of day in some other new mobile products and form factors in the near future.

Palm: The End of a Long and Troubled Road

Palm P{ilot photo
The original Palm

I was delighted back in the spring of 2010 when Hewlett-Packard announced it was buying Palm. I’ve been a fan of Palm for 15 years, but throughout its history, the company has always been hamstrung by a lack of adequate financial resources. With mighty HP behind it,  Palm could finally reach its destiny.

I couldn’t imagine that 20 months later, after wasting more than $3 billion, HP would put Palm’s sole remaining asset, the webOS operating system, out at the curb with a “Free to a Good Home” sign around its neck. (I’m sorry, I simply cannot credit HP CEO Meg Whitman’s claim in an interview with The Verge’s Joshua Topolsky that we’d eventually see new HP tablets and smartphones powered by webOS.  If HP meant that, it  wouldn’t have let the webOS team scatter to the winds.)

But if it’s a sad end to the Palm line, it is somehow a fitting one. Palm always  was a company that couldn’t buy a break.

Palm’s  troubles started at the very beginning. Having failed to raise venture capital funding to get the original Palm Pilot manufactured and marketed, founders Donna Dubinsky, Jeff Hawkins, and Ed Colligan had to sell the company to modem maker U.S. Robotics in 1996. Almost immediately, U.S. Robotics turned around and sold itself to 3Com. It’s not clear that 3Com was more than dimly aware that Palm was part of the deal. It certainly clear that 3Com never had any idea of what to do with it.

Palm was forced to stop using the Palm Pilot brand in a trademark dispute with the Pilot Pen Co.

After founders Dubinsky, Hawkins, and Colligan left in a dispute over strategy, 3Com spun Palm into two companies, PalmOne, which made PDA hardware, and PalmSource, which owned the operating system. The goal was to license Palm software to third parties, but the only really significant licensee it signed was Handspring, the company started by Dubinsky, et. al. PalmOne (which later renamed itself Palm) struggled with constant management turmoil, while PalmSource struggled, mostly without luck, to modernize Palm’s increasingly creaky operating system.

Meanwhile, the crew at Handspring managed to turn the Palm into the first real smartphone, the Treo.  Eventually, in a bity of financial judo, Handspring merged with Palm and the company regains the right to develop its own OS, which by then had been sold to Access, a japanese software company.

Alas, it was really too late. Money was as short as ever and drastic action was needed to save the Palm OS from hopeless obsolence (by this point, Palm was becoming largely an OEM of Windows Mobile phones.)  In 2008, Palm got a $100 million infusion from Roger McNamee’s Silver Lake Partners and former  Apple hardware guru Jon Rubenstein came aboard, eventually as CEO. The new team produced webOS and got it into the Palm Pre, but the hardware never won the accolades the software earned. It was a modest success at best and the money drain continued.

The HP acquisition was supposed to change Palm’s fortunes for good, but of course we know how that turned out. But given the soap opera history, the ending should hardly be a surprise.

Analysis: HP Releases webOS to Open Source Community

Today HP made a fascinating decision. One that is disruptive, exciting, and could lead to valuable innovation. HP has decided to release webOS to the open source community. This decision could have significant impact on the mobile landscape and may end up being one of the most disruptive moves yet.

A quote from the release:

“HP plans to continue to be active in the development and support of webOS. By combining the innovative webOS platform with the development power of the open source community, there is the opportunity to significantly improve applications and web services for the next generation of devices.”

The move by HP to put webOS into Open Source is a brilliant one. Although it was a disaster for them and forced them to write off the $3 billion they invested in it, it is now a gift from them to consumers and could have a drastic impact on the future of mobile devices. Next to Apple’s iOS, webOS is arguably the best non-Apple mobile OS on the market. And it is easy to develop for since software developers can use mainstream Web tools to create webOS applications. Also as a part of the release to open source HP will also contribute ENYO, the application framework for webOS.

Meg Whitman stated in a quote from the press release:

“webOS is the only platform designed from the ground up to be mobile, cloud-connected and scalable,” said Meg Whitman, HP president and chief executive officer. “By contributing this innovation, HP unleashes the creativity of the open source community to advance a new generation of applications and devices.”

Unlike Google’s Android or Windows 8 for tablets, it will come with no strings attached. As a rich Open Source OS, webOS could finally reach its full potential. It would not surprise me to see many of the big Android backers in tablets move quickly to webOS and some may even use it for some innovative smart phones as well.

We believe Android could be the biggest loser from this move by HP. Google has constantly taken criticism from the OEMs due to their lack of unity in releases and overall short roadmap. We have heard countless times how many vendors desire a better option than Android. To many of them Windows Phone provided an opportunity but now this void may be filled by webOS.

HP said they plan to continue to invest in the webOS open source project and will have dedicated team members involved with the open source community.

The move of webOS to Open Source is great news for vendors, developers and consumers and could quickly become one of the better options for OEMs who want more control of their designs and mobile OS user interface in order to help them differentiate themselves from competitors.

Related: Dear Industry – Dare to Differntiate

I applaud this move and although it is bold I believe it has the potential to benefit this industry greatly. I am extremely excited to see how the open source community, developers, and OEMs embrace this opportunity. This is perhaps one of the most exciting pieces of news of 2011.

Check out this small forum thread on HP’s website, asking them to release webOS to open source.

Open Source webOS: A Nice Gesture, but a Sad End

In the end, Hewlett-Packard could neither use webOS to gain a foothold in the smartphone and tablet market, nor could it sell the operating system it acquired as part of the $1.2 billion purchase of Palm last year. So it is giving it away, releasing the code and the application framework under an open source license. The sad truth is that we are unlikely to ever again see webOS in a commercially viable smartphone or tablet.

Sad face TouchPadFor webOS to have a real life after HP, some hardware maker would have had to snap it up. But the likeliest suspects, Samsung and HTC, already have their hands full with Android and Windows Phone, and perhaps Windows 8 too. Amazon was a rumored buyer, but it has little interest in taking on a major OS development project; it’s doing just fine with an old version of Android.

The problem is that successful mobile software has to be co-developed with the hardware it runs on. Of the current mobile players, the one pure software company, Google, is getting into hardware with the purchase of Motorola Mobility. And it continues to work intimately with its leading hardware partners on design. Microsoft gives its Windows Phone hardware partners very limited freedom in their design choices. Apple, of course, is the maestro of integrated mobile hardware and software, and it was in an attempt to emulate Apple’s success that HP bought Palm in the first place.

There’s a good reason for this. The mobile user experience depends to a huge degree on how smoothly the hardware and software work together. A huge part of Apple’s success is based on the fact that it and third-party iOS developers know every detail of the very limited variety of devices they write for. In that environment, the hardware and software become one, and this makes for happy users.

Attempts to develop mobile operating systems in isolation have a sorry history. Intel and various partners tried with Moblin, MeeGo, and Tizen and left us with nothing but a pile of odd names.  The LiMo Foundation had no greater success with its attempt to create a mobile Linux.

I’m sure open source webOS will attract a bunch of enthusiastic developers, who will succeed in getting it to run on commodity hardware. But if there were a real chance of getting a product out of this, someone would have shown interest in buying webOS for what I am sure was a bargain-basement price. Instead, they saw a pit full of Pres and TouchPads and 3 billion of HP shareholders’ dollars.

The sad end of webOS is a terrible shame. It was an extremely promising operating system that never really got a chance, hobbled as it was first by the financial weakness of Palm and then by the incompetence and lack of staying power of HP. It deserved much better.

Why HP Has Chosen to Make A Windows 8 Tablet

When it comes to being a PC vendor these days, life is tough. For 30 years they have had a cozy business and only had to worry about designing two major form factors. Desktops and laptops were their bread and butter and they mainly needed to focus on enterprise, SMB and consumer markets.

But over the last two years, with the introduction of tablets and smartphones, their world has been turned upside down. Their enterprise customers are bringing iPhones and Android phones to their IT managers and asking them to support them. And now, iPads, and to some minor degree, Android tablets, are entering IT through the back door as well.

Now, these major PC players have to seriously consider significant plays in tablets and smartphones if they want to keep their IT customers happy. But, even their consumer users want tablets and smartphones from these vendors since they are well-known brands and in most cases, are known for their services and support.

But until recently, if the OEM’s wanted an OS for these products, they pretty much had only one option at their disposal. Android came along at a time when, for most PC vendors, it looked like it was a godsend. But after two years of trying to deal with Google and their scattered approach to designing and releasing so many versions of Android at irregular intervals and favoring marquis partners for major releases, some of the really big PC vendors are de-emphasizing or backing away from Android and are now seriously considering Windows 8 on tablets instead.

I was recently in a meeting with two PC vendors who were wrangling with the issue of backing Android or Windows 8 in tablets and while they still viewed Android as a viable product for potential consumer customers, they have pretty much concluded that if they want a tablet to be accepted by their business customers, they need to back Windows 8 on tablets and especially the ones supporting based on Intel silicon.

The key issue for business is backward compatibility. Although developers will have to adapt their apps to run the Metro UI for tablets, they won’t have to re-write much of the applications code as they would for use with ARM processors. And for users, they can be pretty much be assured that they can run Windows apps even without the Metro touch UI if needed by using the pen input as the mouse on most of these Win 8 tablets that will be out next year.

As for Android support in tablets for business, the interest from the big vendors is waning. There are a lot of reasons for this, but in the chart below, Michael DeGusta created this chart to show the Android and iPhone update history. As you can see, Android’s scattered releases alone have caused nightmares for tablet and smart phone vendors and this type of release schedule within enterprise is just not acceptable.

Of course, HP was the only company to buck the Android trend completely. They bought webOS and, to their credit, had hoped that they could build an ecosystem around webOS so that they had total control of this OS and their ecosystem themselves. Interestingly, they started out backing Android but wisely dropped it as they foresaw serious problems with this OS on many levels. The key one was that they were very concerned that Google did not have a good grasp on how to create a mobile OS that would meet the need of their core customers. So, they bought webOS with the thought that they could use this to create a more robust and secure OS for business and consumers.

Of course, as you know, things have not gone well with webOS and at the moment, it is not clear what HP will do with this great mobile OS. But it is pretty clear that they still do not see Android as an OS they wish to support.

HP actually has a long history of Windows tablet support and has sold it to many vertical market customers over the years. At CES 2009, HP publicly backed Microsoft’s Windows Tablets in Microsoft’s keynote. But with their turning their back on Android and webOS not living up to their own expectations, they pretty much were forced to turn back to Microsoft and will indeed, make Windows 8 on tablets their preferred tablet OS.

For enterprise, this is a no brainer. But they do have some latitude to back even ARM based tablets for consumers with Windows on ARM as well.

So, with HP keeping the PC division and tablets becoming a very important part of the business segment, HP, Dell and Lenovo along with the traditional PC vendors are all going to back Windows 8 on tablets in a big way. Unless Google changes their way of dealing with these vendors, I suspect that they will all eventually ratchet down support for Android tablets and instead put all of their weight behind Windows 8 on tablets, at least when it comes to tablets in the enterprise.


Is Meg Whitman the Right Choice for HP now?

If you have followed HP over the last 12 months, you know that they have had, should we say, some serious missteps in the marketplace. Investor confidence was down and consumers were confused about their strategies, products and future.

The way they communicated the potential spin off of the PSG or PC division only made consumers question whether they should even buy an HP PC if they were not sure they were going to be there to support it 12-18 months from now. They literally made PSG a lame duck division.

Executive Chairman Ray Lane, on the call this afternoon, pointed out that after Aug 18th he got an earful from investors and customers alike and from that point he and the board began to realize that they had to make changes at the top. In the end, they fired former CEO Leo Apotheker for lack of execution and pinned the communications fiasco on him. With that, they determined they needed not only a proven business leader but one that was a great communicator as well. Lane pointed out that they had fresh CEO research material from the last search and even with the prospects that were on that list still in their sight, they determined that someone from within, specifically Meg Whitman who had 8 months of being a board member under her belt, was the right choice.

While many may question her total skill set to run a company like HP, I don’t think HP had a real choice but to hire from within. The problems of the present was only setting them back in terms of short and long term execution and they could not wait even another quarter to right the ship. What she brings to HP is the ability to hit the ground running with little learning curves and make decisions that will help get the rank and file positive again and moving in the same direction. She is knowledgeable enough to quickly sort out the critical strategic issues before them and make the kind of hard decisions needed to get the company moving in the right direction, at least in the short term. She is also a very fast learner, with the ability to absorb a great deal of diverse information quickly.

I can’t emphasize enough how critical it is to get HP moving forward again now and not six or nine months from now.

Whitman made a commitment to deal with the question of PSG as a spin out as fast as possible. More importantly, Ray Lane explained that the intention of the communication about PSG on Aug 18 was to state that the big question about PSG was whether it could be a more nimble company capable of faster innovation if it was spun out. And if that were not the case, it needed to stay inside HP and continue to be a strategic part of their hardware business. Obviously, this is not what they said or what the investors or customers got from the way it was communicated on Aug 18, which is why all the confusion. But it is a priority for Whitman and the board to get this resolved quickly so as not to harm the PC business any further and I applaud her for making this a top issue immediately.

Only time will tell if she was the right one to take over at this time in HP’s history but she has the leadership and communication skills HP needs now to keep it from sinking any further and rallying the troops around a unified vision. And at the moment, I believe that is the real reason the board decided on Whitman. They need her to correct the problems of the present now and get them moving in the right direction as fast as possible.

2 Reasons HP Should Not Spin Off The PC Business

I have been thinking about this ever since the news broke that HP wanted to spin-off their PC business. My company Creative Strategies, Inc has a long history with HP of providing industry and trend analysis to many key groups within the company. Because of that relationship, it would pain me to see HP make a questionable decision to spin-off their PC business.

Right now HP appears to be a company with serious identity issues. We don’t know what is going to happen with their current CEO although rumors are floating that there may be a change at the top. As the board is faced with many tough decisions, I genuinely hope that with these gut wrenching decisions they also reconsider spinning of the PC business.

Bloomberg ran a report yesterday stating that they are in fact reconsidering the proposal to spin-off the PC group. I hope this report is true.

There are two fundamental reasons why spinning off the PC business is the wrong decision for HP.

Hardware Only Business is Dead

A simple look at the history of the technology business highlights some profound truth’s about how hardware evolves. We are in a world where every PC maker other than Apple is dealing with the commoditization of hardware. If HP was to spin-off the PC business they would leave the new entity to solely compete in the global economy with price. This is a battle that a US vendor cannot win against the low-cost strategies of Asian OEM’s.

Proprietary software and services are needed in order to differentiate and add value beyond price. A hardware only business does not have this advantage and can only compete on price.

A hardware only PC business would not likely survive where the industry trends are heading. Which leads to the second reason this is a bad idea.

We Would Lose a Key US Based OEM

If the above scenario played out we would lose a key US-based PC vendor. Only Dell and Apple would be left. Please note, I am not saying HP would go away, only that the spinoff and whatever it would be called have a hard time thriving as a hardware only business.

Because of the historic role HP’s hardware has played in the evolution of the technology industry, it would be tragic if it faded into irrelevance.

I fully understand HP’s desire to move more into the software and services business. Apple has the same strategy, but for Apple, the hardware continues to be a key strategic element to complete and differentiate their ecosystem.

I wish HP would understand this and value the role of hardware in our computing future. Indeed, their PCs and tablets can provide a powerful screen that taps into next generation software and service optimized for their own ecosystem. And they have many of the key elements to continue to thrive as a hardware, software and services company.

Rather I would love to see them craft a vision of what the future should look like with HP hardware, software and services in it and then relentlessly innovate.

HP’s Never Ending Drama: Blame the Board

I don’t pretend to know what is going to happen next at Hewlett-Packard, but both Bloomberg and All Things Digital report that the board is meeting to consider ousting CEO Léo Apotheker and perhaps replace him with former eBay CEO (and current HP director) Meg Whitman.

The HP board has long had a well-earned reputation as one of the worst around, going back at least to the clumsy dumping of CEO Carly Fiorina and the ensuing scandal over spying on reporters to determine the source of boardroom leaks. But its performance in the last year puts it in a class by itself. A board shouldn’t have much involvement in the day-to-day running of a company, but it is responsible for oversight and strategic direction. The HP board has provided neither.

HP stock price chart

HP common stock price (from MarketWatch)

The big problems started a little over a year ago when then-CEO Mark Hurd got caught up in accusations of sexual harassment and an improper relationship with a contractor. The board decided Hurd hadn’t violated any policies on harassment or relationships, but fired him anyway for falsified expense reports. Hurd was widely disliked within HP for his slash-and-burn approach to improving earnings through stringent cost reduction, but he was a first rate operations executive who did make the trains run on time.

The choice of Apotheker seemed to signal a major strategic move by the board. For some time, HP had been a three-headed beast, comprising PCs and associated consumer electronics; enterprise servers, services, and software; and printing and imaging. from desktop inkjets to commercial Indigo digital presses. Apotheker, who had spent most of his career at German software giant SAP,  seemed to be chosen to focus on the enterprise business, especially since the board chose him over Personal Systems Group chief Todd Bradley and Imaging & Printing Group chief Vyomesh Joshi.

Apotheker made his big move this August when he announced that HP was killing the phone and tablet business acquired  (under Hurd) from Palm, was considering selling or spinning out the rest of Personal Systems, and was acquiring Autonomy, British business analytics software maker, for $10 billion. The Autonomy purchase was unanimously approved by the HP board according to the announcement; the other moves certainly must have had board approval as well.

But HP has been in a tailspin since the announcements. The stock price, which had been sinking since spring, cratered (though it rose 10% in intraday trading today on rumors of Apotheker’s departure.) Competitors such as Dell moved to poach corporate customers unnerved by the uncertain future of the PC division.  A fire sale of  the inventory of TouchPad tablets added to the ridicule. And the board, it would appear, panicked again.

In the circumstances, the choice of Whitman, would be an odd one. She has a solid record of accomplishment and has been cooling her heels at the venture capital firm of Kleiner Perkins Caulfield & Byers since losing a bid to become governor of California in 2010. But her business background is largely in consumer services and she would be taking over an HP that Apotheker has remade into an enterprise company.

Might such a move signal the board’s intention to reverse the enterprise direction? Possibly, though that would only lead to even more turmoil. The Autonomy purchase has been approved by both boards, though not yet by shareholders, and would probably be both very messy and very expensive to undo; such agreements typically carry heavy termination fees if the deal fails to close. Nothing irrevocable has been done yet to sell the Personal Systems Group, but the former palm operation is well and truly dead–the Apotheker rumors broke the day after HO began wholesale firing of webOS Global Business Unit employees.

However this turns out, we can expect more drama, and probably more missteps by the HP board. Somewhere in tech heaven, Bill Hewlett and Dave Packard are crying.


An Apology

I messed up. I owe you an explanation.

Well, not really. I was on a delightful trip to Colonial Williamsburg with my 92-year-old father and hero, Ken Lewis, and took a couple of weeks off from blogging and tweeting. I apologize for not staying in touch.

You see, apologies seem to be trending. One of the emails in my neglected inbox was from Reed Hastings, the CEO of Netflix, which angered customers recently with a blockbuster price increase and a confusing bifurcation of its DVD and streaming movie service.

Hastings began the email with an apology: “I messed up. I owe you an explanation.” He continued:

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

Did this appease angry customers or impress Wall Street investors? No. A million customers quit the service, and Netflix’s stock price is less than half what it was earlier this year. “Netflix seems to be making a snuff film starring itself,” a Dow Jones Newswire columnist just tweeted.

The Mob Smells Blood

Then, the other day, the New York Times columnist David Brooks apologized for “being a sap.” Specifically, he apologized to his conservative readers for his previous admiration of President Obama’s centrist, willing-to-compromise, pragmatic approach toward Congress. Obama’s sin: Proposing a $4.4 trillion deficit reduction plan that did not completely cave in to the Republicans. Brooks wrote:

It has gone back… to politics as usual… I was hoping the president would give a cynical nation something unconventional, but, as you know, I’m a sap.

Did this appease angry conservatives bitter about Brooks’s earlier tolerance for Obama? No. The flogosphere erupted in a fury of anger, from both left and right.

In an email to The Atlantic, Brooks mused on the value of apologies:

One thing I’ve noticed is that columns in which you admit error generate more hostility than any other kind. I did a series on what I should have known about the Iraq war and the response from the left was more vicious than at any other time, and I was making a few concessions to them.

Either they smell weakness and exploit it, or they feel more self-righteous than ever. In any case, the lesson is that from a public relations perspective, politicians are probably right in never admitting error in public.

Does this hold true as well for business executives? Should you apologize to customers or employees or investors for upscrewing something big? Is the best policy never to apologize at all?

The obvious advice is to avoid upscrewing in the first place. But upscrews happen. The key is to apologize strategically.

Do you hear HP’s Board of Directors apologizing for allowing a once revered Silicon Valley company to spiral into chaos and irrelevance? Or for even considering Meg Whitman as the next CEO? No.

[I started to list companies that ought to be apologizing for something, but that would consume far too much space. I apologize.]

Remember in April when Sony’s sloppy security allowed hackers to steal credit card information from 10 million Sony PlayStation Network customers? Sony had to shut down PSN for 10 days, knocking 77 million customers offline.

Kaz Hirai, Sony’s No. 2 executive, held a press event to apologize. These screengrabs say it all:


And remember when Apple cut the price of the new iPhone by $200 just two months after introducing it? Steve Jobs, not otherwise known for contrition, issued a public letter of apology, explaining why customers were ungrateful wretches but offering them $100 credit toward buying more Apple products.

Which reminds me of the delightful Joy of Tech cartoon from 2007:

Anyway, I apologize that this post has gone on so long without a conclusion. I promise to do better next time.

P.S. Hey, Reed, how about an apology for naming it “Qwikster”?

Will an HP PC Spinoff Make a Stronger Competitor?

I have been having conversations with key executives around the industry about HP’s decision to explore spinning off their Personal Systems Group, which is the group that makes their business and consumer PC’s. An interesting question that has come up is whether or not spinning off PSG will make for a stronger or weaker competitor in the PC industry?

The logic goes that PSG was so tied up in big company atmosphere, who as of late was prioritizing software and services over hardware. Knowing how large companies often move slow and conservatively I can see how this could be an issue for a group who wants to act more like a startup.

So the real question is if HP does decide to go ahead and spin off PSG, will this move put them in a better position to compete?

I certainly can see and sense the desire from my PSG colleagues to move and innovate faster. The PC marketplace is changing rapidly and competition is getting fierce. But PC’s are not going away and can still be a legitimate business if managed well and they innovate in a more timely manner. So it makes a fair bit of sense to build a case that if spun out they could innovate, create and compete in a fast moving market.

It is also very difficult in today’s changing technology landscape to run a business with a successful enterprise and consumer division. Both require very different mindsets, strategies and leadership.

The fact of the matter however is that whether or not an HP spinoff can make for a stronger competitor in the industry will depend on the leadership and the talent that goes with it or is acquired as a new organization.

If the spinoff is approved by the board and moved forward with, this new entity would start its life as a Fortune 60 company with over $40 billion in annual revenue and it would be the #1 PC manufacturer (if you dont’ cound tablets).

That is not a bad way to start off. However the real test of the leadership will be not just to maintain but to grow their percentage of market share in all the areas they choose to compete.

Although execution will be critical and will be what others affirm as the challenge, what may be even more important is the right vision.

HP’s slogan has been the “PC is personal again.” However the real challenge of the companies who aren’t Apple is to make the “PC interesting again.”

Intel is hoping they can assist makers like Dell, HP, Acer, Samsung and others with their UltraBook initiative. Will UltraBooks Make PCs Interesting Again?

If HP does decide to spin off PSG what we will look for is their vision. What categories will this new entity focus on? Where do they believe the growth areas are? How will they compete, differentiate and add value?

Those questions and more will be what we look for as analysts in order to come to an opinion on how successful and competitive this new business will be in the marketplace.

H-P’s Apotheker: We Want to Split H-P Into Two Companies

H-P CEO Leo Apotheker has a very different set of talking points this week than he did last week in a hastily called teleconference after a trading halt which announced the halt to WebOS investments and the spinoff of the $38 billion Personal Systems Division (PSD). Analysts and Wall Street immediately started picking likely buyers of H-P’s PC product line.

But Monday’s interview with the Wall Street Journal tells a different story with a decidedly different outcome for shareholders. Quoting Apotheker:

What we’re really doing is creating two companies: One focused on the enterprise, and one which will be a highly-effective, end-user device business. It will be much more than PCs.

These businesses are ticking at different speeds, need to have different structures, and make different investment decisions. The device business [is] a fast moving consumer business. If you want to compete in this business you have to be much faster than a conglomerate can move in most circumstances.

The other side of H-P, the enterprise side, that’s where we acquired Autonomy. We have some great ideas for how we can scale that business.

Our default option is to see if we can spin this business off to our shareholders. That’s not the only option that we’re looking at. The board and management have been working on this for quite some time. If we really want to take the necessary steps, you have to involve a lot of people and once you inform a lot of people you need to inform the market.

We said it would take anywhere from 12 to 18 months to complete the spin, and it’s obvious that the decision will happen much sooner. The board will want to make the best decision for shareholders and our current hypothesis is that is by spinning the business to shareholders.

This different story — or Friday’s story told better — is a lot less suicidal than throwing PSD off the bus to the highest rapacious bidder. Motorola did this last year, spinning the personal devices company off from radios and public sector. So there certainly is precedent.

But what do we make of “one which will be a highly-effective, end-user device business. It will be much more than PCs?” My reading is everything consumer including phones, PCs, and printers. If Leo really wants to focus on medium and large enterprises, he’ll throw in transactional servers, storage, and maybe even the entire small-medium business (SMB) organization.

If the spinoff to shareholders looks like my sketch above, it’s not a bad strategy. Makes H-P kinda look like Samsung, which makes smartphones and oil tankers through highly decentralized business units.

Here are the concerns H-P shareholders face in considering a deal, once announced:

  • It’s all about execution. Slamming together PCs and printers does not ensure success. And even enterprise company sales reps sell PCs, or used to. The devil is in the details.
  • The independent, entrepreneurial culture does not exist at H-P. Where does the PC Newco innovation DNA come from?
  • By over-spending in a $10 billion bid for Autonomy, H-P has only $3 billion in cash. Where does PC Newco get the billions it will need for R&D and cash flow? Underfunded, the effort will quickly disintegrate.
  • Did the premature and botched announcement of the spinoff last Friday freeze PSD staffers like deer in headlights? Will the human capital disappear before PC Newco really gets started? Didn’t $5 billion in Palm WebOS investment get vaporized?
  • Can any big PC company — with the glaring exception of Apple — do much better than 6% margins in a fast-churn product rat race?
  • How will consumers react to PC Newco branding (let alone products)? When IBM spun off PCs to Lenovo, the valued ThinkPad brand went to Lenovo. take away the H-P name and logo, and the products won’t sell as readily. And Pavilion as a brand does not come close to the value of ThinkPad.

We’ll leave how the rest of the PC ecosystem might react to the PC spinoff to another day.

via H-P CEO Apotheker Defends Strategy –


What Does the TouchPad Fire Sale Tell Us? Not Much.

Way too much is being made of the success of Hewlett-Packard’s fire sale of TouchPad tablet, essentially the liquidation of a lot of distressed inventory.For example, this The Next Web article speculates on what TouchPad sales might mean for Amazon’s still completely notional tablet.

First, let’s put the TouchPad “frenzy” in some perspective. HP, directly and through channel partners, probably moved somewhere between 300,000 and 500,000 units. By past TouchPad standards that was fabulous. But Apple is likely selling close to a million iPads a week, at full price, every week.

Second, it’s pretty easy to get people to buy a product with a $300 bill of materials (iSuppli’s estimate for the TouchPad) for $99, even a dying product. Folks just can’t resist a deep-discount bargain. The problem is there’s no business model that will sustain it for much more than a weekend. Only wireless phone operators, with lucrative two-year contracts, can afford to offer that much subsidy. Amazon might be able to subsidize a tablet, but by nowhere near that much unless it was very, very selective about who got one.

There are lots of retail liquidators around who know how to move distressed goods of much more dubious value than a TouchPad. All you need is a channel and a low enough price. We shouldn’t read a lot of meaning into this.