I was recently thinking about this weeks uproar about INTC and its future along with the future of its constant companion MSFT. It was frequently stated that people had lost their taste for further speed and improvements in microprocessors. At the same time I have been reading about MSFT investing large sums into the cable industry in attempts to gain a position in the settop boxes for Windows CE. Add to this mix the battle between Sun and MSFT over the future of Java and there may be some things to think about in terms of the future of both of these companies and those that are a part of the overall computing industry.
Firstly one could come to the conclusion that the company with real problems facing it is in fact MSFT not INTC. MSFT first came into a strong position via its MS-DOS and rode that into office applications. Its growth was then strapped to the evolution of PC's to the more Mac like Windows and Win95 systems. The system changes brought with them the required upgrades of office applications. This then finally culminated in the recent surge into the internet and the integration of the net into the applications although I don't believe that it has been the large source of revenue streams that the earlier migrations were. There is a large issue revolving around the NBT (next big thing). What are the possibilities that the public is dying to have? More importantly are there applications that people will need desperately which at the same time will engender the "need for speed" or higher and higher performance processors? One can certainly take the position that we simply cannot envision those possibilities of what is yet to happen. If we could see them, we would have been the ones to produce Lotus 123 or relational databases. I think that is the same as abandoning the attempt to try to get a handle on the future of the companies and is only worth discussing in the same sense as religion since it depends upon faith rather than rational thought. The other side of this is that the current set of applications are quite good and perfectly satisfactory. The only important change to come in the near future is faster network access, "Give me my bandwidth." It is unlikely that MSFT will play a major or dominant role in that story. MSFT has tested the online entertainment business and found that this means "online ENTERTAINMENT" not "ONLINE entertainment". The geeks of Seattle appear to only excel at the first half of the two words and hence have a bust on their hands which is being quietly dismantled. There is also the possibility of online commerce where MSFT has dreamed of siphoning off some small slippage with millions of daily transactions. However, the people that drive the commerce (i.e. financial institutions) know what happened in the software industry and are unlikely to trust their future to the devices of MSFT.
All of this finally brings the strategists of MSFT to conclude that if the market for PC software will slow down over the next few years, the next best large market opportunity would be the other electronic device in the home that people spend large amounts of time with, the TV. The route to the TV for MSFT is not the online entertainment but still driven by the so called digital convergence. They will not try to make your PC act like a TV (i.e. the silly recent attempt to add channels to the desktop), but rather attempt to make your TV act like a PC. Invest in WebTV to begin to learn the business and drivers. Then find a way to make your operating system, Windows CE, the DOS of future cable programming. To do this you have to rub elbows and play with the current proprietors of that turf. This has necessitated the investments in cable that MSFT has been making. This will again be a difficult sell for the crew from Seattle. The ones that run the cable industry have the same fears as the bankers and Oracle's CEO is busy spreading that same message since MSFT is not the only one that wants into cable software. All in all, MSFT's ruthless dominance of the software industry has been great for it for the past 15 years, but may be the largest obstacle of their future. MSFT may in fact be stymied by their own success. As I have often been taught in making deals try to leave a few chips on the table, because you make need the customer again. Rarely has MSFT left chips on the table. From the outside their credo has appeared as "What's mine is mine and so is yours."
How does this impact INTC at all like I mentioned earlier? The same forces that I am speaking of above will act against MSFT in its attempt to battle Sun and Java. In all honesty I don't know the real advantages versus the disadvantages of Java. From the outside the issue seems to crudely come down to the ease and simplicity of write once for all platforms but sacrifice some performance via the virtual Java machine. Although I hold MSFT and not Sun or any of the other supporters, I believe that the anti-MSFT sentiment will eventually win. I watch this in the decisions of the IS department at a very large corporation. They are incredibly anti-MSFT. Someway, somehow by way of government lawsuits or industry setting standards MSFT will lose out on this issue. The basic problem again being a victim of the past success or ruthlessness if you prefer. Here is then where INTC does come into the story. The performance loss that occurs on moving to a virtual Java machine will not be tolerated. The faster higher performance processor will again be required but not necessarily for more complex applications although that should never be ignored. The future would then seem to look pretty safe in the long term for INTC irrespective of short term issues. However, I am not convinced that MSFT will continue on the same trajectory as in the past. Certainly, it will continue to be a solid and profitable enterprise for years to come but there growth rate will continually decelerate.
I would really appreciate thoughts and feedback on this. |
