Over the past few weeks, we've seen some major news coverage of some very big tech companies, and despite the fact that the economy is generally getting better in the U.S., the news from U.S. tech giants isn't all that rosy. We thought it would be worth looking at the factors that might be at play in the surprising stumbles by some of tech's biggest names.
First, we have Intel. Founded in 1968, it is without a doubt the king of tech companies, surviving as other giants have shed their hardware divisions or simply vanished (IBM, Motorola, and Digital Equiment Corporation, we're looking at you!). And yet in an ever-changing and ever-connected world, hardware is not the be all and end all of tech, and Intel is feeling the pinch. The company has started to lose its way, recently announcing that it would lay off 12,000 workers (11% of its workforce). This layoff hits particularly hard in TBG's hometown of Portland, Oregon, as Intel is headquartered just outside of the city and has for years been the glue that held "Silicon Forest" together. Intel suggested that the failing PC market was to blame for the cutbacks, and that a new focus on the Internet of Things (IoT) would help it regain its footing. Intel's CEO said the following:
We are evolving from a PC company to a company that powers the cloud and billions of smart, connected computing devices.
Uh, huh. Surely, outside of a few niche markets (gaming and HTPC being two of them), PC sales are dropping at an astounding rate, with the numbers last year falling to 2007 levels. It's no wonder, then, that so many OEMs big and small are slapping the "Gaming" label on just about everything they sell. For example, tech stalwart Seagate has rolled out the gaming label on a hard drive, of all things, while every Chinese-branded mouse under $15 is miraculously now a cutting-edge gaming mouse.
Intel, in fact, has done a fair share of this gamer-mongering, including the use of a ridiculous skull graphic on its new ultra-high-end Core i7 NUC, shown at left. While that kind of marketing surely isn't going to save it, we're not sure looking to power "billions and billions" of net devices is the answer either. IoT has been around for several years now, and Intel has virtually no role in it whatsoever. In fact, we think that due to the low processing requirements and diverse number of products that make up the IoT, this simply isn't a market ripe for cornering. Intel has plenty of design and manufacturing prowess, but we just don't think it's positioned correctly to stake its business on IoT. How has Intel done in the smart device market over the past five years? In a word, terribly.
Unfortunately, Intel's bread and butter, the PC market, isn't going to save it either, and that's not just because of slowing sales. Or more precisely, not just due to slowing sales that aren't a result of Intel's own failings. You see, ever since Intel came out swinging in 2006 with the wildly-successful Core 2 Duo line of processors, it's been slowing down. And in part that's because the Core 2 Duo knocked Intel's competitor, AMD, right out of the park, leaving Intel to march to the beat of its own drummer. What have we seen as a result? Generational increases in computing power of just 5-10%, as well as surprising mis-steps, such as the aborted release of the Broadwell line of desktop processors in 2014 and the delayed release of Skylake processors in 2015, along with Intel's confession that its yearly tick-tock strategy of refining, shrinking, refining, shrinking just wasn't working anymore.
And now comes news that Apple has reported its first drop in revenue since 2003, when the iPod was still all the rage and Apple had shown it could finally take control of a new market after years of playing second fiddle in the PC market. Sure, it was a leader in personal computing upon its founding in 1976, but it was IBM and Intel that knocked it from its pedestal in the mid-1980s. Ironic, then, that the very product lines that have led to the demise of the PC, namely the smartphone and the tablet, were both essentially Apple inventions. Fitting, perhaps, that the smartphone market and especially the tablet market are now nearly saturated, leading to Apple's financial woes (relatively speaking, of course, as it's still monstrously profitable).
Indeed, this is the story of the rise and fall of tech giants. No company can continue to exist, let alone lead, on the strength of yesterday's tech. And as between Intel and Apple, it's a tough call to pick a future winner in terms of innovation. Both have a great amount of tech genius within their ranks, but both are also operating without a visionary leader a la Intel's Andy Grove, who passed away in March 2016, or the legendary Steve Jobs. While Grove was an engineer with a penchant for marketing, Jobs was a marketer with a deep bench of engineers. Both saw market opportunities and retail trends before anyone else, and that's going to be critical for Intel and Apple to survive another 30-40 years.
Ultimately, we think the tech industry is beginning to evolve just like the broader commercial markets have over the past few decades of globalization. While there has certainly been some consolidation, we think the future of tech lies in stratification, with smaller, more nimble innovators bringing consumers the unique niche products that don't rely on technological prowess so much as a finger on the pulse of lifestyle trends. The success of such innovators as FitBit, GoPro, and most recently Oculus are a testament to the fact that people are yearning for products that open up new horizons and allow them to do things they haven't done before. Faster processors and thinner phones just don't offer that kind of innovation.