Here are some headlines I read this past week: Dell is trying to take itself private. Microsoft is investing in Dell. Intel is pulling out of the motherboard market. AMD is considering ARM CPUs. And the PC is dead.
It’s all related.
Let’s start at the bottom. I don’t think PCs are dead nearly so much as the market has stabilized. PCs are at the point now where their life expectancy is several years now, and they actually remain useful for pretty much the entirety of their life expectancy.
I remember when I started a job in 1998, I sat down at a desk with a brand new 366 MHz Pentium II underneath it. Two years later, the machine felt outmoded. In 1999, they handed me an 800 MHz Pentium III laptop, and two years later, that machine felt outmoded.
Today, I keep PCs five years or longer, and they feel fine.
Here’s the precedent. Virtually all of my home’s major appliances are at least five years old, and the appliances they replaced were a decade old, at least. When I bought my house a decade ago, I bought a fridge and a washing machine, fully expecting them to last more than a decade.
Does that mean appliances are dead? No. It just means it’s not a growing industry. People buy appliances when they break, when they’re remodeling a kitchen and want all their appliances to match, or when they move. It’s a steady business, but not a business with a lot of turnover.
That’s where PCs are finally headed.
And that’s how these other headlines tie in. Dell used to be a growth stock and they aren’t anymore, therefore investors are punishing it. The way to escape that is to take the company private, so they can do what makes sense without having activist investors second-guess it. Once investors realize that PC vendors are more like Whirlpool than like the Dell of 1997 and adjust their expectations to match, maybe they’ll do another IPO and go public again.
Intel is distancing itself from desktop motherboards for the same reason. Motherboards aren’t a profit center for Intel anymore, and the other reason they made them was to ensure a certain level of quality. Now that it’s possible to get comparable (or better) quality elsewhere–I’ve had fewer problems with Asus motherboards than with Intel over the last decade–Intel doesn’t feel the need to be in that market, so they’re pulling out.
AMD is looking into mobile because it desperately needs a profit center. Whether that means trying to compete with the Atom and get x86 chips into mobile or licensing ARM is a good question, though I think it would make sense for AMD to get into ARM. Intel isn’t likely to get back into ARM, due to its severe prejudice against anything Not Invented Here (NIH), and while there are numerous low-end chipmakers delivering dirt cheap chips, there’s probably room at the high end. If AMD can take on Nvidia at the high end of that market, it can get into a growth area. It’s not a high-margin growth area, but AMD is used to selling low-end, low-margin x86 CPUs. If they can make it up in volume, they might be OK. And in the long run, tablets and smartphones are likely to have more turnover than PCs because they take more physical abuse.
As for why Microsoft would invest in Dell, the two companies are in a similar boat, as former growth darlings that are no longer growth stocks. And of the two U.S.-based PC makers left, Dell tended to push Microsoft more, for lack of any other option. HP still sells machines that run Unix and VMS, while Dell pitched (and continues to pitch) its own machines running Windows as less costly, easier-to-maintain alternatives to traditional Unix machines.
I don’t think it’s a case of Microsoft trying to buy influence, because they already have it. I think it’s a case of Microsoft trying to preserve the influence it has. So investing in Dell could be good for Microsoft. It may limit Dell’s options down the line though, so it may not be as good for Dell. But the point is moot if Dell can’t go private on its own and needs the money.