Intel Corporation (NASDAQ:INTC) is facing some serious pressure due to the stagnating growth of the personal computer. It belongs to a product eco-system that relies heavily on the inter-connected co-operation of the members and its dominance in desktop semiconductors is unquestionable.
Intel is getting beaten
The problem comes from Intel Corporation (NASDAQ:INTC)’s unwillingness, or slowness, to adopt product strategies that can sustain the company’s growth. Intel Corporation (NASDAQ:INTC) missed out on mobile computing to QUALCOMM, Inc. (NASDAQ:QCOM), and with Samsung and Apple Inc. (NASDAQ:AAPL) developing processors in-house, the competitive environment has become increasingly difficult.
Intel Corporation (NASDAQ:INTC) has no edge in wireless technologies like QUALCOMM, Inc. (NASDAQ:QCOM), as Intel is reliant on flash-memory and processing technologies for its growth. Intel’s presence in the data center space is one of the last areas where it can anticipate reasonable growth. AT&T Inc. (NYSE:T) believes that the cloud (which relies on Intel Corporation (NASDAQ:INTC) processor-based data-centers) will be a $210 billion industry by 2016.
Information is increasingly becoming centralized in data-centers that can be accessed through the internet through any wireless device. While the cloud provides standardization across all operating systems (Linux, iOS, and Windows), it does not necessarily replace the importance of the desktop computer.
The cloud isn’t that big of a deal
International Business Machines Corp. (NYSE:IBM) reported 70% year-over-year revenue growth from its cloud division. International Business Machines Corp. (NYSE:IBM) has been struggling in the systems and technology division. Companies are adopting the philosophy of renting data centers rather than buying them. This puts a strain on International Business Machines Corp. (NYSE:IBM)’s hardware sales, which declined 16% year-over-year.
The decline in the systems and technology division is likely to continue due to cloud computing. With faster internet speeds in the immediate future, cloud adoption will increase. The cloud has harmed International Business Machines Corp. (NYSE:IBM)’s business, but over the long run, IBM should eventually readjust to the changing technological landscape. The future is about the cloud, but how it affects different technology companies is debatable.
Some are speculating that the computer will no longer be a useful device as all processing and storage functions will be dependent on the cloud. I find that reasoning somewhat fallacious as cloud computing is a solution aimed at improving product standardization (why I use Spotify instead of iTunes).
With Spotify, I gain access to a music library that works on my Windows desktop, Android-based Galaxy S3, and the Apple Inc. (NASDAQ:AAPL) iPad. So there we go; I explained the success of Spotify and the Cloud. Standardization is the reason for the widespread build-out of web based applications. This will result in computing devices becoming far more standardized; it is not a desktop/phone/laptop/tablet replacement.
International Business Machines Corp. (NYSE:IBM) will see further growth in its cloud division as this trend in product standardization continues. It’s not IBM versus Apple Inc. (NASDAQ:AAPL), Samsung, and Microsoft. The cloud and traditional computing work hand in hand, neither is replacing the other. If anything, competition will become fiercer among hardware makers.
Computing cycles slowing down
The problem comes from trying to improve the computer. Consumers have had increasing difficulty with justifying a computer upgrade. Think of it this way, what will a faster processor do for a customer, outside of the added perk of improved graphics in your latest World of Warcraft, Call of Duty production created by Activision Blizzard, Inc. (NASDAQ:ATVI).
High-end gaming isn’t very important to many of the higher-income-earning households. In fact, higher-income households find very little marginal benefit in added computing power. Moreover, wealthier households don’t spend cash on the latest video-game, because a household which earns a higher income tends to spend more on real-world entertainment.
The entertainment of “richer households” involves longer vacations (Priceline.com Inc (NASDAQ:PCLN) anybody?), tickets to the super bowl, UFC championship bouts, and etc. Video games won’t become the primary source of entertainment, so there will never be a sudden influx of computer gamers that will drive up the demand for higher end computing in any substantial way.