Favourable winds or distant storms?

Some times, what Captains consider favourable winds are super-storms a few days out, screaming in with a machete on course to tear the ship apart. Propelled forward by their focused mission to reach the harbour, the Captains keep their course until it is too late.

By 2005, it was known that the computing was getting personal and mobile. Intel kicked off the laptop market with Centrino. WiFi was now part of every mobile computing device, look mom, no wires. iPaq, Palm, Nokia and Blackberry were screaming of the things to come.

There was also a power revolution in the offing. Computing till the middle of the 2000s decade didn’t worry about power consumption – they looked for raw processor performance. But, with laptops and subsequently mobile phones, battery life was another chief consideration.

Intel launched the Atom processor in 2008 to (partially) address this requirement. They had a great thing going with Nokia, Intel and Nokia were developing an operating system based on the Intel Atom processors. We all know how Nokia ended up. To address the mobile market, Intel had to do something additional and drastic.

But how far from the course could Intel veer?

Incumbent’s curse:

Intel had its incumbency position to defend. They had their $100+ Average Selling Prices and 60%+ gross margins to protect. They had little patience for simmering a business in low flame, given the rapid growth of the laptop business. Health. Entertainment. Anti-virus. There were no adjacencies that were as profitable and as large as the x86 protected microprocessors for PCs and Servers.

They decided to keep their course.

The tearing poltergeist of a storm, was secretly lurking behind them, a decade out.

Microsoft: The captain many ships

Microsoft on the other hand had other franchises to depend upon.

They realised the moat was not the Windows platform. It was the software that runs on the platform. So, they surrounded Windows with vassals like Office, SQL, Exchange, Visual Studio, Dynamics, Azure and myriad other things that they could put in place. In time, they de-coupled the vassals from the main ship – their Office now could run in Android/iOS, their SQL server now could run on Red Hat Linux.

So, even if the main Windows ship was gobbled up by the distant swell, they had other crafts to reach the shore.

Mission and vision statements: Intel vs. Microsoft 2005:

One indication of the irrevocable bind Intel strung themselves in is found in their 2005 Mission Statement.

Intel’s Mission Statement 2005: “Our employees share a common vision. To delight our customers, employees and shareholders by relentlessly delivering Intel platform and technology advancements that become essential to the way we work and live.”

Intel Annual Statement 2005

The operative phrase here is “Intel platform and technology”, read it as “x86 platform and technology”. They had no mission to venture beyond the margin rich suzerainty of their x86 fiefdom.

Microsoft embarked on the biggest journey outside the PC (and Windows) at around the same time frame. Their 2005 Mission Statement is more open about the possibilities.

Microsoft’s Mission Statement 2005: “It is our mission to enable people and businesses throughout the world to realise their full potential”

Microsoft Annual Statement 2005

One is a laser focused on the company’s technology. Another is an altruistic ‘generalism’.

The bull in the Qing China shop

Intel’s focused purpose restricted target market definitions.

It is like the Qing China before the Opium wars. The Qing dynasty never acknowledged suzerainty of any great kingdom apart from their own and their vassals (Mongolia, Korea, Tibet and the like). Their management cycles were used up in managing the vast borders and internecine conflicts within. They never responded to British entreaties before the 1839 Opium War I. Their king probably didn’t even get to read the letters from the British queen, while it was a raging election issue in London. The Qing China had no moral reason to compare themselves against anyone else in the world.

It took an armada of English ships for them to understand the powers of Western World. Qing China lost the war, had to work out favourable tariffs and port of entries for the Western powers and accede the sovereignty of Hong Kong to Britain for the next 150+ years.

History, as is its wont, repeated itself. Intel had a great thing going with x86, and never had the reason nor the mission to look beyond. An armada of mobile volume enabled players crawled their way around the great wall, eating Intel’s competitive advantages. As a result, Intel might have to work out concessions with their customers (read, lesser margins and market share) and accede territory (losing the mobile and the associated radio (4G/5G) businesses).

The generalist purpose allowed Microsoft the flexibility to explore other technologies including Azure which was its growth engine in the second decade. The focused purpose didn’t provide latitude for Intel to look beyond their target market.

Travel in a time machine

Which are the points in Intel’s history, someone asked me, where Intel’s could have reversed the decision? For one, the final result of this skirmish is not cast in stone. This will translate into a war of attrition, spread over decades.

Intel lead the revolution. The Centrino introduced thin and light, long battery life, wifi connected laptops. (’03)

Intel could see it ahead – Core (2006) processors enabled thinner, all day battery laptops as they were power friendly.

The market was roaring. Intel was fair as a star, when only one was shining in the sky.

Drunk with the ale of x86 success and blinded by stupendous opportunities that laptops offered, Intel didn’t extend the power curve to envision a different future.

It took an entire village to travel the untrodden ways and define ‘mobility’ beyond laptops into ‘smartphones’.

Oh, the difference to Intel.

Wordsworth turned in his grave with deadly disgust.

But, if Intel were to be retaining their primacy now, what should have changed in the past? Here is my limited view. There are only two options:

• Intel was able to reduce the thermals of their processor to meet that of ARM’s power performance

• The second one is the unthinkable, but should not be improbable – Intel had adopted a RISC standard (may be ARM) some time in the past and had a dual line of Intel and RISC (low power) processors. In a later blog, we will see that margins are aligned to manufacturing, not to chip design.

I feel that Intel attempted <1> for many years, but couldn’t get Atom to be in the same thermal envelope as ARM based processors. So, let us ignore that option. Let us think of the second option.

Revisionist History #1: When Itanium was on the works: 1996

In 2002, Intel came up with a different architecture (not RISC, CISC only) for server processors. The standard and the processors were on the works for over 5-7 years. Was there a long range plan that could have indicated to them that instead of Itanium, they should have explored a CISC based device alternative? This forecast would have been a tearing difficult forecast even in 2005, but then, this is Intel. There were supposed to do difficult things. If they had that view, they could have pursued a low power, volume chip (yeah, lot of cannibalisation would have happened) instead of Itanium – at around the same timeframe.

Revisionist History #2: During the laptop ramp in 2005

The response to Jordan’s genius from the other teams was extremely physical. Until he was 30, Jordan could play the physical game, run to the rim and dunk in the shots. At 30, he had to change course. He started staying about 15 feet away from the rim, but used his deadly jump shots to put in those baskets. That gave birth to Jordan 2.0 and extended his career.

As he progressed in time, Jordan used a different strength to stay ahead of the game.

Intel’s competitive advantage was driven by x86 and their manufacturing strengths.

The primary play until 2006 was the x86 platform, like Jordan’s ‘near the rim’ play.

What if in 2006, in their 40th year of existence, Intel had started depending more on their ‘other’ competitive advantage – manufacturing? Just like Jordan did when he was 30?

What if they used their ‘manufacturing’ strength and got a line ARM processors for Nokia and subsequently Apple? It is impossible to simulate what could have happened. Would Intel have got such a big headway in ARM based processor design? Would it have had pre-eminent position in smartphone processors today? Will it have the volumes, revenue and know how to be in the leading edge of manufacturing now?

There is no knowing. We cannot simulate or speculate. In the 20/20 long term retrospect, it feels like a window of opportunity existed. They launched the Atom processor in 2008 acknowledging this opportunity, but without the thermal where with all to meet the smartphone business needs.

Unlike Jordan, they were still playing ‘near the rim’ on their x86 core strength, even as the market matured around them and they turned 40.

“We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we’d done it”

“The lesson I took away from that was, while we like to speak with data around here, so many times in my career I’ve ended up making decisions with my gut, and I should have followed my gut,” he said. “My gut told me to say yes.”

Paul Otellini, CEO of Intel (2005-13) in The Atlantic 2013

Revisionist History #3: Now

There could have been other points in history when Intel could have got a foot hold in the smartphone processor game.

For a company with such fabled history, Smaug treasures and deep talent, the window might be open even in 2021.

Coming up next: Written on Rosetta Stone #7: ARM Holdings: Disruptor of the disruptor.