IT Industry Hopes for Q4 Holiday Magic

I am floored by how it has come to pass that almost all of the 2013 new tech products get to market in the fourth quarter of 2013. For the most part, the other three quarters of the year were not wasted so much as not used to smooth supply and demand. What is to be done?

2013 products arrive in Q4
Here are some of the data points I used to conclude that 2013 is one backend-loaded product year:

  • Data Center: Xeon E3-1200 v3 single-socket chips based on the Haswell architecture started shipping this month. Servers follow next quarter. Xeon E5 dual-socket chips based on Ivy Bridge announced and anticipated in shipping servers in Q4. New Avoton and Rangely Atom chips for micro-servers and storage/comms are announced and anticipated in product in Q4.
  • PCs: my channel checks show 2013 Gen 4 Core (Haswell) chips in about 10% of SKUs at retail, mostly quad-core. Dual-core chips are now arriving and we’ll see lower-end Haswell notebooks and desktops arriving imminently. Apple, for instance, launched its Haswell-based 2013 iMac all-in-ones September 24th. But note the 2013 Mac Pro announced in June has not shipped and the new MacBooks are missing in action.
  • Tablets: Intel’s Bay Trail Atom chips announced in June are now shipping. They’ll be married to Android or Windows 8.1, which ships in late October. Apple’s 2013 iPad products have not been announced. Android tabs this year have mostly seen software updates, not significant hardware changes.
  • Phones: Apple’s new phones started selling this week. The 5C is last year’s product with a cost-reduced plastic case. The iPhone 5S is the hot product. Unless you stood all day in line last weekend, you’ll be getting your ordered phone …. in Q4. Intel’s Merrifield Atom chips for smartphones, announced in June have yet to be launched. I’m thinking Merrifield gets the spotlight at the early January ’14 CES show.

How did we get so backend loaded?
I don’t think an economics degree is needed to explain what has happened. The phenomenal unit growth over the past decade in personal computers, including mobility, have squarely placed the industry under the forces of global macro-economics. The recession in Europe, pull-back in emerging countries led by China, and slow growth in the USA all contribute to a sub-par macro-economic global economy. Unit volume growth rates have fallen.

The IT industry has reacted with slowed new product introductions in order to sell more of the existing products, which reduces the cost-per-unit of R&D and overhead of existing products. And increases profits.

Unfortunately, products are typically built to a forecast. The forecast for 2012-2013 was higher than reality. More product was built than planned or sold. There are warehouses full of last year’s technology.

The best laugh I’ve gotten in the past year from industry executives is to suggest that “I know a guy who knows a guy in New Jersey who could maybe arrange a warehouse fire.” After about a second of mental arithmetic, I usually get a broad smile back and a response like “Hypothetically, that would certainly be very helpful.” (Industry execs must think I routinely wear a wire.)

So, with warehouses full of product which will depreciate dramatically upon new technology announcements, the industry has said “Give us more time to unload the warehouses.”

Meanwhile, getting the new base technology out the door on schedule is harder, not easier. Semiconductor fabrication, new OS releases, new sensors and drivers, etc. all contribute to friction in the product development schedule. But flaws are unacceptable because of the replacement costs. For example, if a computing flaw is found in Apple’s new iOS 7, which shipped five days ago, Apple will have to fix the install on over 100 million devices and climbing — and deal with class action lawsuits and reputation damage; costs over $1 billion are the starting point.

In short, the industry has slowed its cadence over the past several years to the point where all the sizzle in the market with this year’s products happens at the year-end holidays. (Glad I’m not a Wall Street analyst.)

What happens next?
The warehouses will still be stuffed entering 2014. But there will be less 2012 tech on those shelves, now replaced by 2013 tech.

Marching soldiers are taught that when they get out of step, they skip once and get back in cadence.

The ideal consumer cadence for the IT industry has products shipping in Q2 and fully ramped by mid-Q3; that’s in time for the back-to-school major selling season, second only to the holidays. The data center cadence is more centered on a two-year cycle, while enterprise PC buying prefers predictability.

Consumer tech in 2014 broadly moves to a smaller process node and doubles up to quad-cores. Competitively, Intel is muscling its way into tablets and smartphones. The A7 processor in the new Apple iPhone 5S is Apple’s first shot in response. Intel will come back with 14nm Atoms in 2014, and Apple will have an A8.

Notebooks will see a full generation of innovation as Intel delivers 14nm chips that are on an efficiency path towards thresh-hold voltages — as low as possible — that deliver outstanding battery life. A variation on the same tech gets to Atom by 2014 holidays.

The biggest visible product changes will be in form-factors, as two-in-one notebooks in many designs compete with tablets in many sizes. The risk-averse product manufacturers (who own that product in the warehouses) have to innovate or die, macro-economic conditions be damned. Dell comes to mind.

On the software side, Apple’s IOS 7 looks and acts a lot more like Android than ever before. Who would have guessed that? Microsoft tries again with Windows version 8.1.

Consumer buyers will be information-hosed with more changes than they have seen in years, making decision-making harder.

Intel has been very cagy about what 2014 brings to desktops; another year with Haswell refreshers before a 2015 new architecture is entirely possible. Otherwise, traditional beige boxes are being replaced with all-in-ones and innovative small form-factor machines.

The data center is in step and a skip is unnecessary. The 2014 market battle will answer the question: what place do micro-servers have in the data center? However, there is too much server-supplier capacity chasing a more commodity datacenter. Reports have IBM selling off its server business, and Dell is going private to focus long-term.

The bright spot is that tech products of all classes seems to wear out after about 4-5 years, demanding replacement. Anyone still have an iPhone 3G?

The industry is likely to continue to dawdle its cycles until global macro-economic conditions improve and demand catches up with more of the supply. But moving the availability of products back even two months in the calendar would improve new-product flow-through by catching the back-to-school season.

Catch me on Twitter @peterskastner

warehouse-300x196

 

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Apple’s Q2-2013: Q4 Anticipation

I’m on the road but wanted to update you on Apple’s second quarter.  Revenue was flat and profits were down compared to last year, while iPhone sales were up, and iPad and Mac sales were down. I expect the current third quarter to be constrained by anticipation of expected product announcements in September. Then, product supply issues will be unable to fully meet Q4 holiday demand for iPhone and iPad.

It sure looks like Apple has managed to compress a year’s worth of  opportunities into three or four months. Think how much smoother things might be if product came forth across the entire twelve months of the year.

The text below was supplied by Apple PR. While I cannot vouch for its accuracy, I have no reason at all to dispute it. It’s a useful condensation of the numbers.

This afternoon Apple announced third quarter results, including record June quarter iPhone sales and our highest ever Education revenue. You can find our earnings press release here and a replay of the call with Tim Cook and Peter Oppenheimer is available here
Overall:
– Apple reported quarterly revenue of $35.3 billion and net profit of $6.9 billion, compared to $35 billion and $8.8 billion, respectively, a year ago
– Gross margin was 36.9%, compared with 42.8% in the year-ago quarter
– International sales accounted for 57% of total quarterly revenue
– Apple generated $7.8 billion in cash and has returned $18.8 billion in cash to shareholders through dividends and share repurchases
iPhone:
– Apple sold 31.2 million iPhones, up from 26 million in the year-ago quarter
– iPhone leads in customer satisfaction and loyalty, according to numerous third-party research firms, including J.D. Power & Associates, ChangeWave and Kantar
– Apple reduced iPhone inventory by 600,000 units in the quarter
– iPhone remains strong in the enterprise, and has captured 62.5% of the US commercial market, according to IDC
iPad:
– Apple sold 14.6 million iPads in the quarter, compared with 17 million in the year-ago quarter
– iPad faced a tough June comparison, as the first iPad with a Retina display was launched in the year-ago quarter and we ramped up inventory
– iPad channel inventory was reduced by 700,000 units, making sell-through down just 3% year-over-year
– iPad usage share remains incredibly high, and grew to 84.3% last month, according to Chitika
Mac:
– Apple sold 3.8 million Macs, down from 4 million in the year-ago quarter
– The updated MacBook Air line was launched at WWDC in June, making it available for just three weeks of the quarter.
– The Mac was though down 7% but again outperformed the market, which contracted 11%, according to IDC
– We look forward to the launch OS X Mavericks this fall and of the all new Mac Pro later this year
Music/Services:
– iTunes, software and services together generated $4 billion in quarterly revenue
– We now have more than 320 million iCloud accounts and 240 million Game Center accounts
– There are more than 900,000 apps in the App Store, with more than 375,000 designed specifically for iPad
– Customers have downloaded more than 50 billion apps
– Apple has paid more than $11 billion to developers, half of which was earned in the last four quarters
Education:
– Our education division experienced its highest ever quarterly revenue
– 1.1 million iPads were sold in education, and the Mac experienced strong sales as well
– Maine’s statewide education technology program saw 94% of the state’s elementary and high schools choosing Apple products
– The first phase of Los Angeles Unified School District’s plan to provide 660,000 students with a tablet was approved, resulting in an initial $30 million iPad sale
Retail:
– Apple retail stores generated $4.1 billion in revenue, about equal to a year ago
– iPhone saw strong growth in sales of our own retail stores
– MacBook Air had its most successful Retail launch to date
– We opened six new stores across five countries and now have 408 stores, 156 outside the US
Apple iPads

Apple iPads

Pulse Check: How Intel is Scaling to Meet the Decade’s Opportunities

Eighteen months ago, Intel announced it would address the world’s rapidly growing computing continuum by investing in variations on the Intel Architecture (IA). It was met with a ho-hum. Now, many product families are beginning to emerge from the development labs and head towards production. All with IA DNA, these chip families are designed to be highly competitive in literally dozens of new businesses for Intel, produced in high volumes, and delivering genuine value to customers and end users.

Intel is the only company with an architecture, cash flow, fabs, and R&D capable of scaling its computing engines up and down to meet the decade’s big market opportunities. What is Intel doing and how can they pull this off?

The 2010’s Computing Continuum
Today’s computing is a continuum that ranges from smartphones to mission-critical datacenter machines, and from desktops to automobiles.  These devices represent a total addressable market (TAM) approaching a billion processors a year, and will explode to more than two billion by the end of the decade.  Of that, traditional desktop microprocessors are about 175 million chips this year, and notebooks, 225 million.

For more than four decades, solving all the world’s computing opportunities required multiple computer architectures, operating systems, and applications. That is hardly efficient for the world’s economy, but putting an IBM mainframe into a cell phone wasn’t practical. So we made due with multiple architectures and inefficiencies.

In the 1990’s, I advised early adopters NCR and Sequent in their plans for Intel 486-based servers. Those were desktop PC chips harnessed into datacenter server roles. Over twenty years, Intel learned from its customers to create and improve the Xeon server family of chips, and has achieved a dominant role in datacenter servers.

Now, Intel Corporation is methodically using its world-class silicon design and fabrication capabilities to scale its industry-standard processors down to fit smartphones and embedded applications, and up into high-performance computing applications, as two examples. Scaling in other directions is still in the labs and under wraps.

The Intel Architecture (IA) Continuum
IA is Intel’s architecture and an instruction set that is common (with feature differentiation) in the Atom, Core, and Xeon microprocessors already used in the consumer electronics, desktop and notebook, and server markets, respectively.  These microprocessors are able to run a common stack of software such as Java, Linux or Microsoft Windows.  IA also represents the hardware foundation for hundreds of billions of dollars in software application investments by enterprise and software application package developers that remain valuable assets as long as hardware platforms can run it — and backwards compatibility in IA has protected those software investments.

To meet the widely varying requirements of this decade’s computing continuum, Intel is using the DNA of IA to create application-specific variants of its microprocessors.  Think of this as silicon gene-splicing.  Each variant has its own micro-architecture that is suited for its class of computing requirements (e.g., Sandy Bridge for 2011 desktops and notebooks). These genetically-related processors will extend Intel into new markets, and include instruction-set compatible microprocessors:

  • Embedded processors and electronics known as “systems on a chip” (SOCs) with an Atom core and customized circuitry for controlling machines, display signage, automobiles, and industrial products;
  • Atom, the general-purpose computer heart of consumer electronics mobile devices, tablets, and soon smartphones;
  • Core i3, i5, and i7 processors for business and consumer desktops and notebooks, with increasing numbers of variants for form-factor, low power, and geography;
  • Xeon processors for workstations and servers, with multi-processors capable advances well into the mainframe-class, mission-critical computing segment;
  • Xeon datacenter infrastructure processor variants (e.g., storage systems, and with communications management a logical follow-on);

A Pause to Bring You Up To Date
Please do not be miffed: all of the above was published in February, 2011, more than two years ago. We included it here because it sets the stage for reviewing where Intel stands in delivering on its long-term strategy and plans of the IA computing continuum, and to remind readers that Intel’s strategy is hiding in plain sight for going on five years.

In that piece two years ago, we concluded that IA fits the market requirements of the vast majority of the decade’s computing work requirements, and that Intel is singularly capable of creating the products to fill the expanding needs of the computing market (e.g., many core).

With the launch of the 4th Generation Core 22nm microprocessors (code-name Haswell) this week and the announcement of the code-name Baytrail 22nm Atom systems on a chip (SoCs), it’s an appropriate time to take the pulse on Intel’s long-term stated direction and the products that map to the strategy.

Systems on a Chip (SoCs)
The Haswell/Baytrail launch would be a lot less impressive if Intel had not mastered the SoC.

The benefits of an SoC compared to the traditional multi-chip approach Intel has used up until now are: fewer components, less board space, greater integration, lower power consumption, lower production and assembly costs, and better performance. Phew! Intel could not build a competitive smartphone until it could put all of the logic for a computer onto one chip.

This week’s announcements include SoCs for low-voltage notebooks, tablets, and smartphones. The data center Atom SoCs, code-name Avoton, are expected later this year.

For the first time, Intel’s mainstream PC, data center, and mobile businesses include highly competitive SoCs.

SoCs are all about integration. The announcement last month at Intel’s annual investor meeting that “integration to innovation” was an additional strategy vector for the company hints at using many more variations of SoCs to meet Intel’s market opportunities with highly targeted SoC-based variants of Atom, Core, and Xeon.

Baytrail, The Forthcoming Atom Hero
With the SoCs for Baytrail in tablets and Merrifield in smartphones, Intel can for the first time seriously compete for mobile marketshare against ARM competitors on performance-per-watt and performance. These devices are likely to run the Windows 8, Android, and Chrome operating systems. They will be sold to carriers globally. There will be variants for local markets (i.e., China and Africa).

The smartphone and tablet markets combined exceed the PC market. By delivering competitive chips that run thousands of legacy apps, Intel has finally caught up on the technology front of the mobile business.

Along with almost the entire IT industry, Intel missed the opportunity that became the Apple iPhone. Early Atom processors were not SoCs, had poor battery life, and were relatively expensive. That’s a deep hole to climb out of. But Intel has done just that. There are a lot fewer naysayers than two years ago. The pendulum is now swinging Intel’s way on Atom. 2014 will be the year Intel starts garnering serious market share in mobile devices.

4th Generation Core for Mainstream Notebooks and PCs
Haswell is a new architecture implemented in new SoCs for long-battery-life notebooks, and with traditional chipsets for mainstream notebooks and desktops. The architecture moves the bar markedly higher in graphics performance, power management, and floating point (e.g., scientific) computations.

We are rethinking our computing model as a result of Haswell notebooks and PCs. Unless you are an intense gamer or workstation-class content producer, we think a notebook-technology device is the best solution.

Compared to four-year old notebooks in Intel’s own tests, Haswell era notebooks are: half the weight, half the height, get work done 1.8x faster, convert videos 23x faster, play popular games 26x faster, wake up and go in a few seconds, and with 3x battery life for HD movie playing. Why be tethered to a desktop?

Black, breadbox-size desktops are giving way to all-in-one (AIO) designs like the Apple iMac used to write this blog. That iMac has been running for two years at 100% CPU utilization with no problems. (It does medical research in the background folding proteins). New PC designs use notebook-like components to fit behind the screen. You’ll see AIOs this fall that lie flat as large tablets or go vertical with a rear kick-stand. With touch screen, wireless Internet and Bluetooth peripherals, these new AIOs are easily transportable around the house. That’s the way we see the mainstream desktop PC evolving.

And PCs need to evolve quickly. Sales are down almost 10% this year. One reason is global macro-economic conditions. But everybody knows the PC replacement cycle has slowed to a crawl. Intel’s challenge is to spark the PC replacement cycle. Haswell PCs and notebooks, as noted above, deliver a far superior experience to users than they are putting up with in their old, obsolescent devices.

Xeon processors for workstations, servers, storage, and communications
The data center is a very successful story for Intel. The company has steadily gained workloads from traditional (largely legacy Unix) systems; grown share in the big-ticket Top 500 high-performance computing segment; evolved with mega-datacenter customers such as Amazon, Facebook, and Google; and extended Xeon into storage and communications processors inside the datacenter.

The Haswell architecture includes two additions of great benefit to data-center computing. New floating point architecture and instructions should improve scientific and technical computing throughput by up to 60%, a huge gain over the installed server base. Second, transactional memory is a technology that makes it easier for programmers to deliver fine-grain parallelism, and hence to take advantage of multi-cores with multi-threaded programs, including making operating systems and systems software like databases run more efficiently.

In the past year, the company met one data-center threat in GPU-based computing with PHI, a server add-in card that contains dozens of IA cores that run a version of Linux to enable massively parallel processing. PHI competes with GPU-based challengers from AMD and nVidia.

Another challenge, micro-servers, is more a vision than a market today. Nevertheless, Intel created the code-name Avoton Atom SoC for delivery later this year. Avoton will compete against emerging AMD- and ARM-based micro-server designs.

Challenges
1. The most difficult technology challenge that Intel faces this decade remains software, not hardware.  Internally, the growing list of must-deliver software drivers for hardware such as processor-integrated graphics means that the rigid two-year, tick-tock hardware model must also accommodate software delivery schedules.

Externally, Intel’s full-fray assault on the mobile market requires exquisite tact in dealing with the complex relationships with key software/platform merchants: Apple (iOS), Google (Android), and Microsoft (Windows), who are tough competitors.

In the consumer space such as smartphones, Intel’s ability to deliver applications and a winning user experience are limited by the company’s OEM distribution model. More emphasis needs to be placed on the end-user application ecosystem, both quality and quantity. We’re thinking more reference platform than reference hardware.

2. By the end of the decade, silicon fabrication will be under 10 nm, and it is a lot less clear how Moore’s Law will perform in the 2020’s. Nevertheless, we are optimistic about the next 10-12 years.

3. The company missed the coming iPhone and lost out on a lot of market potential. That can’t happen again. The company last month set up an new emerging devices division charged with finding the next best thing around the same time others do.

4. In the past, we’ve believed that mobile devices — tablets and smartphones — were additive to PCs and notebooks, not substitutional. The new generation of Haswell and Baytrail mobile devices, especially when running Microsoft Windows, offer the best of the portable/consumption world together with the performance and application software (i.e., Microsoft Office) to produce content and data. Can Intel optimize the market around this pivot point?

Observations and Conclusions
Our summary observations have not changed in two years, and are reinforced by the Haswell/Baytrail SoCs that are this week’s proof point:

  • Intel is taking its proven IA platforms and modifying them to scale competitively as existing markets evolve and as new markets such as smartphones emerge.
  • IA scales from handhelds to mission-critical enterprise applications, all able to benefit from a common set of software development tools and protecting the vast majority of the world’s software investments.  Moreover, IA and Intel itself are evolving to specifically meet the needs of a spectrum of computing made personal, the idea that a person will have multiple computing devices that match the time, place and needs of the user.
  • Intel is the only company with an architecture, cash flow, fabs, and R&D capable of scaling its computing engines up and down to meet the decade’s big market opportunities.

Looking forward, Intel has fewer and less critical technology challenges than at any point since the iPhone launch in 2007. Instead, the company’s largely engineering-oriented talent must help the world through a complex market-development challenge as we all sort out what devices are best suited for what tasks. We’ve only scratched the surface of convertible tablet/notebook designs. How can Intel help consumers decide what they want and need so the industry can make them profitably? How fast can Intel help the market to make up its mind? Perhaps the “integration to innovation” initiative needs a marketing component.

If the three-year evolving Ultrabook campaign is an example of how Intel can change consumer tastes, then we think industry progress will be slower than optimal. A “win the hearts and minds” campaign is needed, learning from the lessons of the Ultrabook evolution. It will take skillsets in influencing and moving markets in ways Intel will need more of as personal computing changes over the next decade, for example, as perceptual computing morphs the user interface.

Absent a macro-economic melt-down, Intel is highly likely to enjoy the fruits of five years of investments over the coming two-year life of the Haswell architecture. And there’s no pressing need today to focus beyond 2015.

Biography

Peter S. Kastner is an industry analyst with over forty-five years experience in application development, datacenter operations, computer industry marketing, PCs, and market research.  He was a co-founder of industry-watcher Aberdeen Group in 1989.  His firm, Scott-Page LLC, consults with technology companies and technology users.

Twitter: @peterskastner

Haswell Core i7 desktop microprocessor

Haswell Core i7 desktop microprocessor


Apps Will Eat Us Out of House & Home

No single mobile application (app) is a problem. In fact, the iPhone and its Apple App Store five years ago opened a whole generation of technology for the benefit of humankind. It’s the proliferation of apps that is the problem. We need to think about an end game.

As is often the case, I came on this blog opportunity by living my digital life. Over the past year, I’ve pared down my app collection of free and paid apps from about 150 to 120. I now have separate stacks for tablet versus smartphone. I did this because I was running out of expensive device memory, and because there were so many I didn’t use frequently enough to carry. Oh, you too?

But app pruning is not the problem for today. Rather, let’s think about the proliferation of all apps. Six months ago, there were over 800,000 active apps in Apple’s app store, according to 148Apps.biz. There are also hundreds of thousands of Android apps in the various app stores for that operating system. That’s a lot of apps!

So many apps, that it exceeds what anybody could productively use.

More importantly, and the nugget of this blog thought, is there are too many apps to categorize and keep track of.

Meanwhile, just like a decade ago we saw the land rush by businesses to reach consumers through web sites, the business-to-consumer (B2C) push for unique-to-the-business apps is overwhelming the stores and the ability of consumers. Every day now I click on a mobile URL and get waylaid by the screen asking “would you like the app for our web site?” Seems everybody now has an app.

So how do we as a digital society manage all those apps? I concede the app review sites. If you’re looking for hobby apps, say photography, you’ll do well to consider your peers’ reviews. But what about your local grocery store? Or office supply store. Or home improvement store. Lesser justification, me thinks.

What I can’t get out of my head is the idea that B2C apps end up in the digital equivalent of the oh-so-20th-century Yellow Pages. Where there are 2,000 business categories and local listings under each, some paid.

In any event, the proliferation of mobile apps cannot grow forever. We are already into the problems with large numbers. App Stores may scale in technology to millions of apps, but we really need an end game, a different way of sorting out and harnessing the apps we most need at the moment. That’s it: just-in-time apps (JIT-apps).

The old fashioned way

The old fashioned way

@peterskastner

 

The Holes in AT&T’s $14 Billion Network Expansion

AT&T today announced plans to invest $14 billion over the next three years to significantly expand and enhance its wireless and wireline IP broadband networks to support growing customer demand for high-speed Internet access and new mobile, app and cloud services. The investment plan – Project Velocity IP (VIP) – expands AT&T’s high-potential growth platforms.

The gist of AT&T’s planned network expansion announcement comes from these press release bullets:

  • 4G LTE network expansion expected to cover 300 million people by year-end 2014
  • Wired IP broadband network expected to expand to 75 percent of customer locations in AT&T’s 22-state wireline service area by year-end 2015
  • Fiber deployment expected to reach 1 million additional business customer locations, covering 50 percent of multi-tenant office buildings in AT&T’s wireline service area by year-end 2015
  • 99 percent of customer locations in wireline service area expected to have high-speed
    IP Internet access via IP wireline and/or 4G LTE.

Like Verizon with Fios, AT&T is now embarked on running fiber to the curb across its 22-state service area. Fiber provides very high bandwidth with concomitant high capital costs to run the fiber down the street. Fiber is at its economic best in dense urban and suburban neighborhoods. However, there are tens of millions of residences in low-density neighborhoods where the economics are sketchy at best. For these ex-urban customers, AT&T will deliver broadband via wireless 4G LTE. No fiber for you.

I am an AT&T wireless customer. [Full disclosure: I’m also a stockholder.] I have five years experience with four generations of iPhones, two generations of iPads, and an odd cell phone or two. I often travel with these devices. On a good day, AT&T wireless is adequate for mobile communications. That is, e-mail, messaging, and Internet browsing. The caveat is that performance is always superior outside.

Inside, where the bulk of Internet connectivity is needed, AT&T’s wireless is poor to fair, and an inadequate substitute for broadband. That’s partly physics, where walls impede the signal of all wireless carriers. Without a boost, inside-the-home 4G LTE wireless is no panacea for broadband Internet connectivity.

AT&T 3G MicroCell

Responding to customer complaints about poor inside wireless reception, AT&T three years ago started offering the 3G MicroCell, a $300 femtocell built by Cisco. The 3G MicroCell creates a house-sized wireless zone that works with AT&T’s GSM-based wireless cell phones, iPhones, and iPads. Think of the 3G MicroCell as an 8-inch tall cell phone tower. I have two. They work fine with three exceptions:

  1. The wireless traffic is backhauled via a wired home Ethernet network through a cable modem to the Internet backbone. If you don’t already have wired broadband Internet, the 3G MicroCell can’t improve interior home reception and wireless speeds;
  2. The AT&T online activation process is complex, subject to network outages and error messages, and headed towards more than one tech support call. [See trouble ticket CM20121002_50231474 and annexes].
  3. The 3G MicroCell does not work with many routers. If you have a home network that’s more complex than a cable modem, the 3G MicroCell might not might not work for you. (15% re-stocking fee applies).

Adding insult to injury, AT&T has embarked on a major marketing program to replace traditional landline telephones with the AT&T Wireless Home Phone, which will suffer all the problems that cell phone customers have indoors.

AT&T Wireless Home Phone

The gaping hole in AT&T’s $14 billion strategy is wireless. We all know wireless demand is near infinite. Inside-the-home coverage is spotty for calls and not ideal for high-speed Internet connectivity.

Hooray for those who get a triple-play of Internet, TV, and phone service. Boo-hoo for the 25% of AT&T’s customers who won’t get wired Internet.

In three years, AT&T will be back with another wireless program to try to keep up with, let alone get ahead of, wireless customer dissatisfaction.

Gaming AMD’s 2012 Strategy

AMD intends to pursue “growth opportunities” in low-powered devices, emerging markets and Internet-based businesses.

There’s an awful lot of mis-guided analysis wafting about regarding AMD’s new strategic direction, which the company says it will make public in February. This piece is to help you (and me) sort through the facts and the opportunities. I last took a look at AMD’s strategies earlier this year, available here.

Starting With the Facts

  • AMD is a fabless semiconductor company since 2009. The company depends on GlobalFoundries and soon Taiwan Semiconductor to actually fabricate its chips;
  • In its latest quarter, AMD had net income of about $100 million on $1.7 billion in revenue. Subsequently, the company announced a restructuring that seeks to cut costs by $118 million in 2012, largely through a reduction in force of about ten percent;
  • AMD has about a 20% market share in the PC market, which Intel says is growing north of 20% this year, largely in emerging markets;
  • AMD’s products compete most successfully against rival Intel in the low- to mid-range PC categories, but 2011 PC processors have underwhelmed reviewers, especially in performance as compared to comparable Intel products;
  • AMD has less than a 10% market share in the server market of about 250,000 units, which grew 7.6% last quarter according to Gartner Group;
  • AMD’s graphics division competes with nVidia in the discrete graphics chip business, which is growing in profitable commercial applications like high-performance supercomputing and declining in the core PC business as Intel’s integrated graphics is now “good enough” for mainstream buyers;
  • AMD has no significant expertise in phone and tablet chip design, especially the multi-function “systems on a chip (SOCs)” that make up all of today’s hot sellers.

What Will AMD CEO Rory Read’s Strategy Be?

I have no insider information and no crystal ball. But my eyebrows were seriously raised this morning in perplexity to see several headlines such as “AMD to give up competing with Intel on X86“, which led to “AMD struggling to reinvent itself” in the hometown Mercury News. I will stipulate that AMD is indeed struggling to reinvent itself, as the public process has taken most of 2011. The board of directors itself seems unclear on direction. That said, here is my score card on reinvention opportunities in descending order of attractiveness:

  1. Servers —  For not much more work than a desktop high-end Bulldozer microprocessor, AMD makes Opteron 6200 server processors. Hundreds or thousands more revenue dollars per chip at correspondingly higher margins. AMD has a tiny market share, but keeps a foot in the door at the major server OEMs. The company has been late and underdelivered to its OEMs recently. But the problem is execution, not computer science.
  2. Desktop and Notebook PCs — AMD is in this market and the volumes are huge. AMD needs volume to amortize its R&D and fab preparation costs for each generation of products. Twenty percent of a 400 million chip 2011 market is 80 million units! While faster, more competitive chips would help gain market share from Intel, AMD has to execute profitably in the PC space to survive. I see no role for AMD that does not include PCs — unless we are talking about a much smaller, specialized AMD.
  3. Graphics Processors (GPUs) — ATI products are neck-and-neck with nVidia in the discrete graphics card space. But nVidia has done a great job of late creating a high-performance computing market that consumes tens of thousands of commercial-grade (e.g., high price) graphics cards. Intel is about to jump into the HPC space with Knight’s Corner, a many-X86-core chip. Meanwhile, AMD needs the graphics talent onboard to drive innovation in its Fusion processors that marry a processor and graphics on one chip. So, I don’t see an AMD without a graphics component, but neither do I see huge profit pools either.
  4. Getting Out of the X86 Business — If you’re reading along and thinking you might short AMD stock, this is the reason not to: the only legally sanctioned software-compatible competition to X86 inventor Intel. If AMD decides to get out of making X86 chips, it better have a sound strategy in mind and the ability to execute. But be assured that the investment bankers and hedge funds would be flailing elbows to buy the piece of AMD that allows them to mint, er, process X86 chips. So, I describe this option as “sell off the family jewels”, and am not enthralled with the prospects for success in using those funds to generate $6.8 billion in profitable revenue or better to replace today’s X86 business.
  5. Entering the ARM Smartphone and Tablet Market— A sure path to Chapter 11. Remember, AMD no longer makes the chips it designs, so it lacks any fab margin to use elsewhere in the business. It starts against well-experienced ARM processor designers including Apple, Qualcomm, Samsung, and TI … and even nVidia. Most ARM licensees take an off-the-shelf design from ARM that is tweaked and married to input-output to create an SOC design, that then competes for space at one of the handful of global fab companies. AMD has absolutely no special sauce to win in the ARM SOC kitchen.To win, AMD would have to execute flawlessly in its maiden start (see execution problems above), gain credibility, nail down 100+ design wins for its second generation, and outrace the largest and most experienced companies in the digital consumer products arena. Oh, and don’t forget volume, profitability, and especially cash flow. It can’t be done. Or if it can be done, the risks are at heart-attack levels.

“AMD intends to pursue “growth opportunities” in low-powered devices, emerging markets and Internet-based businesses.” One way to read that ambiguous sentence by AMD is a strategy that includes:

  • Tablets and netbooks running X86 Windows 8;
  • Emerging geographic markets, chasing Intel for the next billion Internet users in places like Brazil, China, and even Africa. Here, AMD’s traditional value play resonates;
  • Internet-based businesses such as lots of profitable servers in the cloud. Tier 4 datacenters for Amazon, Apple, Facebook, Google, and Microsoft are a small but off-the-charts growing market.

So, let’s get together in February and see how the strategy chips fall. Or post a comment on your game plan for AMD.

Tablet-Notebook Hybrids Arrive

A mule is the hybrid offspring of a male donkey and a female horse. The West was won with these strong pack animals. We’re beginning to see hybrids combining the DNA of the tablet, notebook, and netbook. I like this idea.

The photo below depicts the new Asus Eee Pad, announced at CES. This new tablet hybrid has an optional docking station that offers full QWERTY keyboard, touchpad and Android buttons, transforming the Eee Pad into a “full-fledged notebook” for mobile productivity.

 Powered by NVIDIA’s Tegra-2 dual core processor, runs the tablet-optimized Android 3.0 Honeycomb OS. The Eee Pad Transformer features a 10.1-inch 1280×800 IPS touchscreen with durable and scratch-resistant glass and 178-degree viewing angle, a 5 Megapixel main camera and a 1.2 Megapixel front camera for video chat.

Just 12.98mm thick and weighs 1.5 pounds (680g), this Honeycomb tablet comes pre-loaded with the Polaris Office 3.0 mobile office suite allowing users to edit various types of office documents on the go. Asus claims that the new Eee Pad Transformer tablet will provide 9.5 hours of battery life and it will be extended to 16 hours with dock.

We’ll see how the market reacts. The ability of the Eee Pad to work as an entry-level productivity notebook during the day followed by lug-around tablet use at night makes sense, like a work-to-evening outfit of clothes.

I have tablets and I have notebooks. If I had to have one device, it might well be a hybrid.

Let’s see how this new hybrid category plays out among the hundreds of devices yet to launch this year.

Source: Techiser

Asus Eee-Pad Transformer