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October 22, 2012

A Long Road Ahead: Cloud's Impact on the Potential Obsolescence of Intel

Despite posting declines in sales and profit in the third quarter of 2012, Intel’s (News - Alert) results still beat analysts’ expectations. But the sluggish Q3 earnings is a red flag to many that speculate Intel’s results may not be a blip but rather a future trend for the world’s largest chip maker.

As soon as the news of Intel’s first sales decline in more than a decade hit the wires, the speculation and debates were well underway, Siamak Farah, CEO at InfoStreet (News - Alert), told TMCnet in a recent interview.

He suggested Intel’s decline is symbolic of a larger economic trend, and is being compared to Blackberry-maker Research in Motion’s (News - Alert) rapidly declining market share and tumbling revenue.

“It is relatively easy to look at the micro level and compare Intel’s dominance in the PC market to its lackluster performance in the burgeoning mobile world; however, to get a clear picture of things to come, a macro look is warranted,” Farah said. “The tectonic plates in the technical world have been on the move for more than a decade.”

Given the mobile nature of today’s workforce, Intel no longer holds the power it once did, given that users are working with multiple screens from multiple locations.

“The world is no longer concerned with what desk you sit at, it’s about what device is nearest to you, and where you are reaching. The PC desktop is no longer the most dominant screen,” Farah said. “Users now have multiple screens and all the files and apps they need are in the cloud. Users are no longer stuck with one machine – and they want the experience on each machine (i.e. tablet, desktop, laptop, smartphone, etc.) to be the same. The cloud paradigm shift has happened.”

While the cloud’s benefits to users and businesses is a story that gets told on a regular basis, on the supplier side it has been just as fast and furious, according to Farah, if not more so.

It’s almost universally accepted, he explained, that the cloud provides anytime, anywhere access and gives users relief from installing, maintaining and upgrading software and hardware; offers a pay-as-you-go model; is greener; and provides access to otherwise hard-to-reach expertise.

“However, on the supplier side, the shift to the cloud has been just as furious. For example, a very successful software company offering shrink-wrapped software has been able to capture more than 90 percent of its market and cannot expand this market anymore,” Farah said. “Existing users don’t want to upgrade due to the headaches, learning curve, and disruption involved. In addition, traditional sales are dead. Almost all voicemails go unanswered, unsolicited e-mails are marked as spam, and the price point is too low for suits and ties to do in-person visits.”

“However, since the cloud is so popular, by converting their market to use their cloud version, the company can consistently count on recurring revenue as opposed to the hit and run ‘software upgrade’ sale,” he said. “Also, upgrading, supporting and maintaining the cloud version will cost less for the software developer. No wonder there is a major shift to the cloud.”

InfoStreet first got a hint of the cloud phenomenon when they saw that with the advent of the cloud, PCs no longer had a stronghold on people’s software. 

“It used to be people would say, ‘I can’t buy a Mac, all my software runs on PCs only.’ However, we now know that sales of Macs are skyrocketing, not only because iPhones make Apple (News - Alert) popular, but because most software has moved to the Cloud and any device will work. Users are no longer hostage to their PC,” Farah said.

Another reason why Intel is suffering is its lack of market share in the tablet and mobile chip markets. In mobile devices, battery life places strict limits on how much power a processor can draw – and Intel only has 0.2 percent of the market for these kinds of chips.

“PC sales have lost steam due to increased mobile use, and people are no longer replacing their old PCs. It used to be that PCs needed to be changed every three years to keep their speed up. However, since people are for the most part using cloud software and all of their computing is done in the cloud, PCs are just display devices and any old speed would do,” Farah added. “Taking a look at this macro level, it’s easy to see why Intel’s traditional way of doing business (just provide faster chips) is losing its demand.”

Edited by Braden Becker

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