Danger signs for the Wintel empire

As PC shipments near 100 million units per year, it seems the Wintel Empire will go on forever. This unique marriage of a software company and a chip maker - which coupled Windows 3.1 with the 486, Windows 95 with the Pentium and now Windows NT with the Pentium II server - seems as solid as Gibraltar.

Do the combined forces of Intel and Microsoft constitute a monopoly? It sure seems as if they dominate the industry, dictating what users can buy at what prices.

So, do they?

As my colleague at International Data Corp. (IDC), Dave Vellante, pointed out in our annual client briefing last month, by revenues, they are not. Last year, Intel and Microsoft together brought in about as much money as Hewlett-Packard, or half as much as IBM.

But by market valuation - shares of stock multiplied by stock price - "Wintel Inc." is the most powerful company in the world, with more than $US300 billion - a lot more than the rest of the computer industry. The alliance has been lucrative, the symbiosis strong.

But whether apparent or not, the Wintel Empire is at a crossroads. The two partners, facing pressures on their flanks from different forces, may, in reacting, go in separate directions.

Of the two companies, Intel is the more vulnerable. It's reacting to market forces, not simply the US government. In its core market, Intel has traditionally dominated via product cycles, milking profits from them while competitors are still ramping up. When those competitors enter the market and drive prices lower, Intel has its next product about ready to ship.

But with the sub-$2000 PC catching on and the transition to 64-bit computing in the distant future, Intel is losing its favourable price differential. The first hint of how that will affect margins was in last quarter's disappointing earnings.

And if Intel is to compete in consumer markets - which it must if it's to remain a leader in microprocessors - then it will have to enter several low-margin commodity markets. That's a new business model for the company.

In the enterprise, Wintel will remain strong well into the next decade on the strength of NT, Intel's PC and server technology, and Microsoft's applications. But outside the enterprise - in the home, in cyberspace, in appliances and embedded systems - Wintel will be just another player. As those other markets ascend, the Wintel Empire will shrink as surely as Caesar's did.

For the most part, IS will see little outward change. But slowly, the interests of Intel and Microsoft will diverge. And slowly, the design points of products will change. In a doomsday scenario, all this would happen at meltdown speed sometime early in the next decade, leaving a legacy of Wintel systems every bit as much deadweight as today's proprietary mainframe and client/server systems.

A more likely scenario is one of erosion so slow that we don't really notice it. Someday, perhaps, the names Intel and Microsoft will be as inspirational as the names Sperry and Burroughs. The computing paradigm will have changed, the Wintel era gone by.

Hopefully, by then the mutual fund managers running our pension funds will have long since moved our assets into newer, fresher stocks more in keeping with the new paradigm.

Whatever that is.

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John Gantz

PC World

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